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The economic crisis which started this summer shows that the problems of the banking sector are far from over. As a result of the initial crisis which started in 2007, the regulatory framework of the financial sector is undergoing a huge change. The ultimate development of the regulation will be the outcome of the different political influences European policymakers will face. The adoption of the Basel III framework, or the CRD 4 when passed into European law, is a centerpiece of the financial sector reform.



When the new rules were released, many banks boasted about their ability to meet the guidelines much before the deadlines. However, the crisis of the Eurozone showed that neither confidence in the sector was restored, nor was its stability. Some analysts argue that European banks have not taken measures drastic enough to clean up their balance sheets as a cause of the potency of the sovereign crisis1. Instead of only adjusting the business model as a response to the new regulatory environment, it is now likely that the sector will face a major restructuring.



For the past 20 years, the banking sector has been in constant adaptation to deregulation, which has resulted in a major crisis. However, presently, banks are presenting the new restructurings as a consequence of the regulation: SMEs are warned of a credit crunch, and employees of job losses!



Who pays the bill?

Three parties are involved in the game: employees, clients and shareholders.

SME’s in particular, but also other categories of clients are warned about more expensive access to financing. To a certain extent, access to credit is already tightened. In the light of the liquidity crisis, banks in certain countries are trying to both reduce assets and increase collection of funds. The reasons for the crisis are known: lack of regulation and supervision, toxic products, excessive incentive systems. The banks in the major European marketplaces such as the UK and France are now using the argument of tighter regulation to justify redundancy plans. The reasons given by banks: introduction of an FTT or of the Vickers rule (UK, where pension funds are endangered by the saying of banks, if separating retail and investment banking). The basic argument put in advance is that tighter capital rules will induce a mechanical reduction of ROE and necessitate cost cutting (Nordic countries, France). Some Eastern European countries are facing severe restrictions in access to financing because of the shrinkage of bank’s balance sheets.



The banking sector has announced around 116 000 losses of jobs worldwide since the beginning of the year,out of which 30 000 for HSBC and 15 000 for Lloyds only2. This figure has doubled since August 2 this year. In France, the problematic access to USD funding is also one of the causes which make banks consider cutting activities which finance the real economy, such as trade and project finance. Presently, real economy banking is affected in this second wave of restructuring.



It is unacceptable for us that employees are taken as main variable of adjustment for years of mismanagement and excessive risk-taking. The sector as a whole is suffering from a lack of confidence, evinced by the sharp increase of the price of refinancing and a general defiance towards the sector. Not regulation, but 20 years of deregulation have brought us there!



Remuneration policies remain unchanged at the trading floors

In this turmoil, bonuses for trading floors remain sky-high. Despite the regulation introduced under the CRD III, bonus policies have not changed in substance. Thus, the risk of moral hazard has not been reduced.



The payment of these high bonuses is often justified by the need of banks to keep their best employees. However, it is surprising that banks are ready and wlling to cut activities which finance the real economy and necessitate a long experience which cannot be replaced at once, such as project and trade finance. Another irony is that banks are making such severe job cuts at a time when reporting and compliance rules are increasing which will require more skilled staff to ensure the banks full adherence to regulatory requirements.



Banks should contribute to economic and social development

As trade unions, we cannot accept the presentation of the restructurings and job losses as a consequence of tighter regulation. These arguments are used as a communication strategy by banks in order to get stakeholders on the side of weaker regulation.

Separation of trading and retail banking, ring fencing or fragmentation of the universal model: it is unlikely that European banking will change according to a single model. It is much more likely that it will remain diversified, as the countries that constitute our continent3.

What we need is a more resilient banking system which serves the real economy and preserves employment. However, this should not be detrimental to economic development and employment. Banks should not forget that they have a major responsibility for the well functioning of the economy.



Source: Ute Meyenberg, FFSBSF-CFDT, France

14 November 2011



1 Nicolas Véron: Testimony on the European Debt and Financial Crisis, Bruegel Policy contribution, Issue 2011/11 . September 2011

2 Les annonces en série de plans sociaux concerneront les activités de crédit des banques, La Tribune, 2 août 2011et Dans le monde les banques vont supprimer 116 000 postes, Les Echos, 8 novembre 2011