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
www.ebf-fbe.eu 2
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
www.ebf-fbe.eu
www.ebf-fbe.eu 8