European Commissioner Hill Speaks at Brookings
Brookings Institution
“European Financial Regulation and Transatlantic Collaboration”
Wednesday, February 25, 2015
Key Topics & Takeaways
- Capital Markets Union: Hill explained that he released a green paper to collect comments on the CMU so that he could understand the current facts and identify obstacles to the project, rather than constructing a blueprint for an ideal union to be built from scratch.
- Financial Stability: Hill stated that the EU has strengthened its regulations since the financial crisis and that its measures have been “fairly comparable to those in the U.S.,” and that overall capital ratios are “not wildly divergent.” He rejected the notion that the EU might step back from the FSB’s approach and reiterated his belief in international financial cooperation.
- TTIP: An audience member asked if not including financial services regulation in TTIP would make a difference. Hill replied that it would because having a more formal way of working together on regulatory issues is in the EU’s and U.S.’s common interest.
- Financial Transaction Tax: Hill said an FTT is best done at a global level so as not to have market-based competition problems. He cautioned that those who propose an FTT should be conscious of potential downsides for the CMU.
Speakers
- Lord Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union
In his remarks, Lord Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, said the United States and European Union (EU) share common values, and that transatlantic cooperation, especially in financial services, must be a force for positive change.
Commenting on the new European Commission, Hill said the top priority is job creation and growth and that the Commission wants to “be bigger on the big things” by focusing on more significant legislative proposals. He said the new structure of the European Commission encourages a more focused approach to building the single market and increasing trade.
Hill said growth in Europe can be promoted by a strong and safe financial system that is robust enough to deal with challenging times. He said the bulk of legislation has been targeted at greater supervision and transparency, and on building stronger institutions. He stated that he is committed to addressing other sources of risk and bringing forward proposals to have an effective resolution regime for non-bank financial institutions. Overall, however, Hill said he does not anticipate the same volume of financial regulatory legislation seen in recent years. He commented that he hopes to enter a period of “regulatory stability” during which he will also be able to review the regulatory efforts of recent years to “change things we didn’t get right.”
Hill then highlighted the Capital Markets Union (CMU) that was launched last week, explaining that its goal is to unlock investment for the long-term by removing barriers that stand between investors and investment opportunities. He hoped that the CMU would be a “major market upgrade” with better connections to build a faster and more efficient system. Hill said this would be a long-term and ambitious project, “but the prize is a big one,” with the hope that investors from around the world would be attracted to Europe’s safe and stable markets.
Turning to transatlantic cooperation, Hill stated that the creation of a stable financial system cannot be done in isolation and that the U.S. and EU must cooperate as the world’s two biggest markets. He said the U.S. and EU are in a unique position of leadership to set global standards for regulation that entrench their core values, but that if they do not step up to lead together, than other nations such as China would. He said the EU recognizes the importance of international rules and supports dialogues within the G20 and the Financial Stability Board (FSB), but that international proposals are often not very detailed and are subject to domestic legislation and pressures.
Hill lamented that while the EU and U.S. work well in many areas, informal dialogue on domestic financial regulations have proven to be too little and result in scrambles for “last minute fixes” in some areas. He stressed the need for a “more solid, treaty-based system for cooperation” through the Transatlantic Trade and Investment Partnership (TTIP) that would ensure that domestic regulations work well together. He argued that the main added value in TTIP will lie in regulatory cooperation, and questioned “how can we possibly leave financial services out?” He stated that enhanced cooperation would allow European and American regulators to consult each other at early stages of rulemaking processes and allow the U.S. and EU to rely on each other’s rules. He urged that the benefits of cooperation are clear and that early troubleshooting and cooperation would mean that stability could be built more efficiently. He called the U.S. opposition to cooperation “unfounded” and stressed that the EU’s real goal is to ensure the compatibility of regulation by establishing TTIP as an anchor to constructive cooperation.
Question and Answer:
Douglas Elliot, Fellow of Economic Studies at the Brookings Institution, said the CMU is clearly a good idea, but that he is concerned there is an excessive focus on small and medium-sized enterprises (SMEs).
Hill answered that support for the CMU proposal comes from across the 28 member states of the EU. He said the seeming political focus on SMEs stems from the perception that European SMEs with good ideas come to the U.S. for funding and then stay here, while an effective CMU would make Europe more attractive and lead to more job creation. He stated that the CMU, if it works properly, would benefit businesses of all sizes.
An audience member asked how Hill planned to work around domestic legal regimes, such as solvency laws, as he works to harmonize capital markets. Hill responded that this is why he started with a green paper to collect comments – to start with a sensible analysis to understand the obstacles to a proper CMU. He said he wants to understand the present facts rather than starting with a blueprint for an ideal CMU because he is not “building from scratch.” He added that he hopes to come up with a set of priorities and next steps over the summer.
Elliot cautioned that an excessive focus on jobs and growth could hurt stability and noted that leverage ratios in the U.S. tend to be safer than in Europe. He said there is a concern that the EU might be “backing away” from leverage ratios in favor of supporting growth.
Hill countered that the EU has strengthened its regulations since the financial crisis and that its measures have been “fairly comparable to those in the U.S.,” and that overall capital ratios are “not wildly divergent.” He rejected the notion that the EU might step back from the FSB’s approach and reiterated his belief in international financial cooperation.
An audience member asked if there is a risk that the CMU will create unstable markets and lead to shadow banking. Hill said one of the consequences of the term “shadow banking” is that people think it is “dangerous and shadowy.” He commented that regulators need a sensible, risk-based approach and that the FSB and EU have taken measures to address risks. He argued that increasing the role of capital markets should not be assumed to increase financial instability.
Asked about the division of labor on financial stability between him and the European Central Bank (ECB), Hill replied that the EU has a range of bodies that work on the subject, including the ECB and the central banks of member states. He commented that the ECB was created to serve as a forum for central bankers to identify common issues and agree on approaches to solving them.
Elliot then turned to the prospects of a financial transaction tax (FTT) in Europe. He commented that it is strange to hear about efforts such as the CMU to make markets more broad and efficient while others call for an FTT that would “throw sand in the gears.”
Hill replied that an FTT may have originally been intended to throw sand in the gears and “fight the animal spirits,” but that the issue is best addressed at a global level, so as not to have market-based competition problems. He cautioned that those who propose an FTT should be conscious of potential downsides for the CMU.
Cybersecurity
An audience member asked what role Hill and the European Commission might play in cybersecurity within the banking union. Hill replied that this is at the heart of the problem of new technologies meant to transform financial services, saying they also risk concentrating risk and leaving markets open to problems. He said he has discussed cybersecurity with Treasury Secretary Jacob Lew and added that it “would be sensible” for the EU and U.S. to share their thinking in this space.
An audience member asked if not including financial services regulation in TTIP would make a difference. Hill replied that it would because having a more formal way of working together on regulatory issues is in the EU’s and U.S.’s common interest. He said it makes sense to cooperate more because a number of issues currently affect both sides but are typically not discussed until regulators are near the end of solving them in different ways.
For more information on this event and to view an archived webcast, please click here.
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Brookings Institution
“European Financial Regulation and Transatlantic Collaboration”
Wednesday, February 25, 2015
Key Topics & Takeaways
- Capital Markets Union: Hill explained that he released a green paper to collect comments on the CMU so that he could understand the current facts and identify obstacles to the project, rather than constructing a blueprint for an ideal union to be built from scratch.
- Financial Stability: Hill stated that the EU has strengthened its regulations since the financial crisis and that its measures have been “fairly comparable to those in the U.S.,” and that overall capital ratios are “not wildly divergent.” He rejected the notion that the EU might step back from the FSB’s approach and reiterated his belief in international financial cooperation.
- TTIP: An audience member asked if not including financial services regulation in TTIP would make a difference. Hill replied that it would because having a more formal way of working together on regulatory issues is in the EU’s and U.S.’s common interest.
- Financial Transaction Tax: Hill said an FTT is best done at a global level so as not to have market-based competition problems. He cautioned that those who propose an FTT should be conscious of potential downsides for the CMU.
Speakers
- Lord Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union
In his remarks, Lord Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, said the United States and European Union (EU) share common values, and that transatlantic cooperation, especially in financial services, must be a force for positive change.
Commenting on the new European Commission, Hill said the top priority is job creation and growth and that the Commission wants to “be bigger on the big things” by focusing on more significant legislative proposals. He said the new structure of the European Commission encourages a more focused approach to building the single market and increasing trade.
Hill said growth in Europe can be promoted by a strong and safe financial system that is robust enough to deal with challenging times. He said the bulk of legislation has been targeted at greater supervision and transparency, and on building stronger institutions. He stated that he is committed to addressing other sources of risk and bringing forward proposals to have an effective resolution regime for non-bank financial institutions. Overall, however, Hill said he does not anticipate the same volume of financial regulatory legislation seen in recent years. He commented that he hopes to enter a period of “regulatory stability” during which he will also be able to review the regulatory efforts of recent years to “change things we didn’t get right.”
Hill then highlighted the Capital Markets Union (CMU) that was launched last week, explaining that its goal is to unlock investment for the long-term by removing barriers that stand between investors and investment opportunities. He hoped that the CMU would be a “major market upgrade” with better connections to build a faster and more efficient system. Hill said this would be a long-term and ambitious project, “but the prize is a big one,” with the hope that investors from around the world would be attracted to Europe’s safe and stable markets.
Turning to transatlantic cooperation, Hill stated that the creation of a stable financial system cannot be done in isolation and that the U.S. and EU must cooperate as the world’s two biggest markets. He said the U.S. and EU are in a unique position of leadership to set global standards for regulation that entrench their core values, but that if they do not step up to lead together, than other nations such as China would. He said the EU recognizes the importance of international rules and supports dialogues within the G20 and the Financial Stability Board (FSB), but that international proposals are often not very detailed and are subject to domestic legislation and pressures.
Hill lamented that while the EU and U.S. work well in many areas, informal dialogue on domestic financial regulations have proven to be too little and result in scrambles for “last minute fixes” in some areas. He stressed the need for a “more solid, treaty-based system for cooperation” through the Transatlantic Trade and Investment Partnership (TTIP) that would ensure that domestic regulations work well together. He argued that the main added value in TTIP will lie in regulatory cooperation, and questioned “how can we possibly leave financial services out?” He stated that enhanced cooperation would allow European and American regulators to consult each other at early stages of rulemaking processes and allow the U.S. and EU to rely on each other’s rules. He urged that the benefits of cooperation are clear and that early troubleshooting and cooperation would mean that stability could be built more efficiently. He called the U.S. opposition to cooperation “unfounded” and stressed that the EU’s real goal is to ensure the compatibility of regulation by establishing TTIP as an anchor to constructive cooperation.
Question and Answer:
Douglas Elliot, Fellow of Economic Studies at the Brookings Institution, said the CMU is clearly a good idea, but that he is concerned there is an excessive focus on small and medium-sized enterprises (SMEs).
Hill answered that support for the CMU proposal comes from across the 28 member states of the EU. He said the seeming political focus on SMEs stems from the perception that European SMEs with good ideas come to the U.S. for funding and then stay here, while an effective CMU would make Europe more attractive and lead to more job creation. He stated that the CMU, if it works properly, would benefit businesses of all sizes.
An audience member asked how Hill planned to work around domestic legal regimes, such as solvency laws, as he works to harmonize capital markets. Hill responded that this is why he started with a green paper to collect comments – to start with a sensible analysis to understand the obstacles to a proper CMU. He said he wants to understand the present facts rather than starting with a blueprint for an ideal CMU because he is not “building from scratch.” He added that he hopes to come up with a set of priorities and next steps over the summer.
Elliot cautioned that an excessive focus on jobs and growth could hurt stability and noted that leverage ratios in the U.S. tend to be safer than in Europe. He said there is a concern that the EU might be “backing away” from leverage ratios in favor of supporting growth.
Hill countered that the EU has strengthened its regulations since the financial crisis and that its measures have been “fairly comparable to those in the U.S.,” and that overall capital ratios are “not wildly divergent.” He rejected the notion that the EU might step back from the FSB’s approach and reiterated his belief in international financial cooperation.
An audience member asked if there is a risk that the CMU will create unstable markets and lead to shadow banking. Hill said one of the consequences of the term “shadow banking” is that people think it is “dangerous and shadowy.” He commented that regulators need a sensible, risk-based approach and that the FSB and EU have taken measures to address risks. He argued that increasing the role of capital markets should not be assumed to increase financial instability.
Asked about the division of labor on financial stability between him and the European Central Bank (ECB), Hill replied that the EU has a range of bodies that work on the subject, including the ECB and the central banks of member states. He commented that the ECB was created to serve as a forum for central bankers to identify common issues and agree on approaches to solving them.
Elliot then turned to the prospects of a financial transaction tax (FTT) in Europe. He commented that it is strange to hear about efforts such as the CMU to make markets more broad and efficient while others call for an FTT that would “throw sand in the gears.”
Hill replied that an FTT may have originally been intended to throw sand in the gears and “fight the animal spirits,” but that the issue is best addressed at a global level, so as not to have market-based competition problems. He cautioned that those who propose an FTT should be conscious of potential downsides for the CMU.
Cybersecurity
An audience member asked what role Hill and the European Commission might play in cybersecurity within the banking union. Hill replied that this is at the heart of the problem of new technologies meant to transform financial services, saying they also risk concentrating risk and leaving markets open to problems. He said he has discussed cybersecurity with Treasury Secretary Jacob Lew and added that it “would be sensible” for the EU and U.S. to share their thinking in this space.
An audience member asked if not including financial services regulation in TTIP would make a difference. Hill replied that it would because having a more formal way of working together on regulatory issues is in the EU’s and U.S.’s common interest. He said it makes sense to cooperate more because a number of issues currently affect both sides but are typically not discussed until regulators are near the end of solving them in different ways.
For more information on this event and to view an archived webcast, please click here.