The example I choose here is the Single Euro Payments Area, in short SEPA initiative, led by the European Payments Council, which has started officially last month. It is a market-led initiative aiming at removing technical, legal and commercial barriers against smooth cashless cross-border payments in euro. The objective is to make cashless paying with euro as easy, efficient and safe as it is today within one country. This has genuine benefits for consumers, firms and public administrations having to conduct cross-border payments. The launch included both the roll-outs of the SEPA credit transfer system and the SEPA cards framework. The SEPA direct debit system will follow before the end of 2009. The ECB has supported the European Payments Council in a variety of ways. For example, the ECB regularly organised meetings with stakeholders such as end-users, infrastructures providers and card schemes. We have also published a study of SEPA’s potential economic impact, which highlighted, among other things, the room for cost reductions for banks. 6 The ECB is also very active in enhancing knowledge about financial integration. Our research network on “Capital Markets and Financial Integration in Europe” with the Center for Financial Studies at the University of Frankfurt and whose Second Symposium you are currently attending is one good example. A major task of the ECB in this area is also the “Report on Financial Integration in Europe”.
But it’s also clear that a significant speed bump in transition is uncertainty about how the switch to new rates will be treated under the huge range of existing regulations that weren’t written with this kind of event in mind. The official sector must pave the way for transition by eliminating that uncertainty. Paving over the speed bumps, if you will. Since my last speech about LIBOR, the official sector has worked closely with the ARRC and others to provide clear guidance and offer the prospect of relief from existing rules. There is a final rule on swap margins for legacy swaps that transition away from LIBOR,16 a proposed CFPB rule on transitioning consumer credit,17 accounting guidance from the FASB and the SEC,18 tax guidance from the IRS,19 and relief from the CFTC.20 The Federal Housing Finance Administration has taken a number of actions, including prohibiting the Federal Home Loan Banks from entering into LIBOR transactions or investments.21 Fannie Mae and Freddie Mac will stop accepting LIBOR-based ARMs by the end of this year22 and have created new ARM products indexed to the 30-day SOFR average.23 The supervisory agencies have also eliminated uncertainty about what stance they will be taking on LIBOR transition in their supervisory and examination work—they’ve said very clearly they’ll be focusing on it, and every supervised firm needs to focus on it too.