Frank Elderson: Interview with Die Presse

In an interview with Die Presse, Frank Elderson discusses the current state of regulation in the banking sector. Although banks generally express concerns over the high costs of regulation, Elderson points out that these costs are often outweighed by the benefits of regulation in maintaining the stability of the financial system.

After the 2008 financial crisis, regulatory reforms were introduced to make European banks more resilient, with banks today being better capitalized, more liquid, and more profitable than before. However, Elderson questions whether the regulatory framework could be simplified without jeopardizing sector stability.

He acknowledges that regulation and supervision have become more complex over time, partly due to the diverse nature of banks and the increasingly intricate environment they operate in. Risks have also grown more complex, encompassing geopolitical tensions, cyber threats, climate and nature risks, and artificial intelligence. Despite this, Elderson emphasizes that complexity is not an end in itself and that regulators constantly assess the possibility of achieving objectives with simpler rules and regulations.

They have taken various measures to reduce reporting obligations and accelerate processes, but simplification should not be confused with deregulation.

The biggest obstacle to European banks' international competitiveness, according to Elderson, is fragmentation. Although progress has been made, Europe still lacks a truly integrated banking market. This leads to higher costs, lower efficiency, and fewer opportunities for scale, which are crucial for international competition. To address this issue, Elderson advocates for completing the Single Market, the Savings and Investments Union, and the Banking Union, including establishing a European deposit insurance scheme.

He stresses that simplification and integration are two sides of the same coin, both essential for competitiveness.

Elderson also highlights the potential benefits of a fully integrated banking market, such as increased competition, better products, and more efficient risk sharing. He points out that while local banks know their customers best, competition is already strong in countries like Austria. A single jurisdiction with several hundred million customers would likely lead to improved products, better risk management, and the ability to fund future-oriented investments, such as those required for addressing the climate and nature crises, the energy transition, and demographic shifts.

However, Elderson cautions against lowering international standards, as this would not eliminate risks but rather shift the burden from regulation to supervision. Proportionality in supervision, which takes into account the size, complexity, and risk profile of institutions, is crucial. He supports raising the threshold for small and non-complex banks from €5 billion to €10 billion, enabling up to 150 additional banks to benefit from lighter reporting requirements while still ensuring adequate supervision.