Philippe Brassac looks back at the major events of 2016 and the challenges to come in 2017.
Philippe Brassac takes a look back at 2016 and his first observation is that “in France we have a solid and stable banking system that finances the economy in greater proportions than the rest of Europe and with very low interest rates and margins.”
2016 also featured lower and lower and even negative interest rates, due to the uncertainty caused by the Brexit vote. During the year there were also fears of an additional tightening in Basel Committee regulations, which would mainly penalise the European economy’s financing model.
The banking profession continues to negotiate very actively with the Basel Committee: “Everyone now acknowledges that the level of security is no longer an issue. So uniformity is no reason for forcing European banks to change models, which would ultimately make it hard for Europe to secure financing. …”.
Brassac noted: “… the French banking system welcomes any rule that makes finance more secure. This is precisely what we are standing up for in Basel IV: the in-house models developed by major French banks are risk-measurement models that are far more relevant and suited to the situation of our establishments and that have benefits for our policies. … for 10 to 15 years we have been asked for policies for better selecting risks based on our in-house models, and once we managed to do so, with a very low cost of risk, they tell us that such low risks are not credible and that we have to change models!”.
Regarding the euro zone and its ability to assert its specific characteristics on the international stage. “The Banking Union was not built on a broad ambition that would have consisted in identifying a political target, while setting a true strategy for financing the European economy. Instead of a political objective, we have had only technical constraints. Hopefully, this surge in European political ambition will be an issue in elections scheduled for 2017 in France and Germany.”
Brassac also discussed the attention that will have to be paid to regulatory trends, given that, in addition to enhancing security for banks they must also be relevant: “… a close dialogue is needed between regulators and professionals, who must agree to go in the direction of these regulations but also explain how to implement them operationally in the clients’ true interests. …Protecting consumers doesn’t mean going it alone, as that might not only demutualise the processes but also actually eliminate the added value in the commercial relationship. This scattering of objectives makes a win-win relationship impossible between banks and their customers.”
As for the economic environment in 2017, Brassac said: “The challenge is to reinstall a yield curve that makes it possible to intermediate between short and long interest rates, as this is necessary for the proper functioning of the European banking system, as well as for savers to follow guidelines. … the issue of interest rates in 2017 is crucial at a time when the ECB has announced the easing of its monetary intervention system.”
Regarding Brexit consequences, he explained: “The French banking system is not directly affected. We don’t have the same issues of access to Europe as international and US banks do. But there is the future role of Paris to consider. It clearly has a card to play, given its economic and financial fabric and its transport and social welfare infrastructures. But Paris also needs to offer a clear and attractive tax, labour and regulatory environment.”
Lastly, on the digitalisation of the banking sector, Brassac concluded: “This is an acceleration along the lines of what already existed and not an outright break. For 30 years banks have been pushing their customers towards greater self-service and the use of digital. … Fintechs did not invent this. Moreover, banks are now a breeding ground for fintechs, welcoming them in incubators, working with them as partners, and financing them. Digitalisation is not a new world that is running headlong into the banking system, although it is true that issues are being raised of security and a level playing field with new players. Rather, digitalisation is enhancing the multi-channel relationships and transforming client relationships that already existed.”