European Banking Sectorin a period of Global Financial and Economic

Crisis

Viktorija Proskurovska

Adviser, Economic and Monetary Affairs and Relations with Associates of the European Banking Federation

10th Inter-Balkan Forum of Banking Associations16 October 2009 - Sarajevo, Bosnia & Herzegovina

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Significance of the crisis

• Evaporation of liquidity in the inter-banking market; • Bankruptcies of financial giants, causing systemic risk; • Loss of public trust in the financial sector;• Deterioration in general economic conditions;• Increase of the government share in the private sector

(causing unlevel playing field).

Global estimated loss: USD 3.4 trillion (about € 2.3 trillion).

EU GDP might fall by 4% in 2009,

US GDP may decrease 2.6% in 2009.

Reaction of banks

• Reflect on their weaknesses;• Reduce their costs and improve returns;• Clean-up their balance sheets;• Adapt their business strategies.

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Reaction of the ECB and national governments

More liquidity and capital:• Euro-area Governments committed about 35% of GDP to

financial sector support measures;• Eurosystem’s balance sheet had almost doubled.

Negative consequence: • Increased public ownership in the EU banking sector.

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Regulatory response by the European Commission

EU Commission is working on the body of legislation on:

• supervisory architecture;• capital requirements;• accounting principles;• remuneration policies;• hedge funds, UCITS, etc.

Aim:to ensure the right incentives, reduce gold-plating, and strengthen risk management and prudential oversight.

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The EURO

• Benefits of euro membership: – confidence in the currency (avoid sharp devaluation during

crisis);

– ECB measures to enhance market liquidity enabled euro area countries to avoid a credit squeeze.

• Challenges:– Differences in the pricing of euro member countries’ debt and

credit default insurance have widened.

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Conclusion

Current EU-level priorities are:

– Need for effective government exit strategies;

– ECB to continue facilitating the working of financial markets;

– EU authorities to finalise their proposal for the Regulation on banking supervision;

– banks to continue their operations while reforming internal procedures.

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Thank you!

For contacts:

Viktorija Proskurovska

Adviser in Economic and Monetary Affairs, Associates

European Banking Federation

v.proskurovska@ebf-fbe.eu

www.ebf-fbe.eu

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