On 12 January 2017, the European Commission’s Competition Commissioner, Margrethe Vestager, delivered a speech on supporting growth through competition in financial markets.
State aid during the financial crisis
Highlighting that 2017 marks a decade since the collapse of Northern Rock and the start of the financial crisis, Commissioner Vestager noted that banks have developed substantially since that point, and are better capitalised, run and able to face crisis without government funding.
Ms. Vestager commented that, prior to the financial crisis, the state aid rules were the only framework to protect fair competition when dealing with troubled banks. State aid rules have been in place for many years to preserve competition and, in this case, ensure that competition is not forgotten in the midst of supporting failing banks.
During the financial crisis, the state aid regime enabled governments to bail out failing banks, while ensuring that the assistance did not cost the taxpayer more than it should or allow those banks to gain an unfair advantage over rivals. Ms. Vestager noted that since 2007, the Commission has taken 450 state aid decisions, with more than 65 banks being restructured and 40 banks being liquidated in “a managed and orderly way“.
Meeting the challenges of the industry
Ms. Vestager commented that, while the banking industry is in much better shape than it had been in 2007, some banks are still dealing with the effects of the crisis. The Commissioner noted that the low interest rate environment makes it more difficult for many banks to generate profits.
However, Ms. Vestager considered that banks needs to be “imaginative” in finding solutions to the problems of raising funds, for example by using technology to cut costs or provide new services. Ms. Vestager also outlined how the Commission’s Capital Markets Union will enable SMEs to raise money more easily on capital markets through venture capital, particularly for those that have grown fast and outgrown bank lending.
Competition and innovation
Finally, Commissioner Vestager commented that the financial industry has “a lot to gain” from innovation, noting that the Commission has been examining competition in payment services. Ms. Vestager commented that for innovation to thrive, a market needs to be open for competition.
As regards payment services, Vestager noted that the payment market needs to embrace innovation, highlighting that the new Payment Services Directive will ensure that all businesses (not just banks) can offer new, innovative online payment solutions.
Ms. Vestager concluded by stating that competition in the financial sector does not just help to cut costs for businesses and consumers, but also helps to make the sector more efficient and innovative.
What can the financial services industry take from this?
Commissioner Vestager’s speech illustrates the Commission’s commitment to ensure a strong and stable banking market. It reiterates once again the importance of the sector developing through enhanced competition and innovative solutions to make the sector more efficient and to continue to grow.