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Introductory remarks European legislative initiatives Jerzy Pruski Bank Guarantee Fund Poland EFDI - IADI Conference Strengthening Financial Stability – Deposit Insurance Contributions Rome, 1 October 2010 1 European Union Risk areas 2 Risk sources - main areas Broad range of benefits of globalisation Global economy • Insufficient information • Crisis contagion Limiting risk requires actions in three areas: 1) 2) 3) domestic markets cross-border issues large financial institutions 3 Harmonization and common EU financial stability rules European initiatives Domestic markets Basel III DGS Directive Resolution funds Area not addressed Cross-border issues EU institutions, e.g.: ECB - European Central Bank ESRB - European Systemic Risk Board EBA - European Banking Authority Large financial institutions Assets transfer „Living wills” Cooperation 4 European Union Large banks perspective 5 Banking sector size and concentration Banking sector size to GDP (% ) Netherlands UK 478 Germany 373 France - banking sector asset size 360 Belgium - proportion of potential risk to banking sector asset size 354 Ireland 329 Spain - proportion of potential risk to GDP in different states 312 Italy 168 Poland 75 0 100 200 300 400 % 500 Assets of the largest bank group to GDP Assets of 3 largest banking groups to GDP 350% Differentiations 502 332% 325% Assets of the largest bank group to banking sector balance sheet total Assets of 3 largest banking groups to banking sector balance sheet total 90% 82% 309% 80% 300% 269% 68% 70% 243% 250% 203% 65% 65% 64% 63% 60% 200% 170% 158% 50% 46% 150% 120% 107% 109% 40% 121% 36% 30% 43% 28% 16% 39% 39% 20% 35% 28% 25% 15% Sources: ECB, Banks Annual Reports (2009), „Credit Writedowns” (June 2010), „The Forbes Global 2000” ranking (2010) Be lg iu m nd s ly Ita N et he rla nd Ire la Sp ai n U K an ce Fr er m rla nd s m N et he U K Be lg iu nd la Ire an ce Fr Sp ai n ly Ita an y er m Ja pa n G th Ko re a U SA So u an y 10% 0% Po la nd 17% 29% G 12% 27% 26% 66% Po la nd 50% 63% 39% 33% 95% 91% 100% 108% 38% 6 Banking sector size and concentration in relation to country fiscal position Assets of 3 largest banks, deficit and debt (% of GDP) 400% Assets of 3 largest banks (% of GDP) 350% Netherlands UK Banking sector size 400% Debt growth (2010 forecast) 350% Belgium 300% Netherlands 300% UK Belgium Ireland Ireland 250% Banking sector size Deficit growth/fall (2010 forecast) Assets of 3 largest banks (% of GDP) -1 250% France France 200% 200% Spain Spain 150% 150% Italy Germany 100% Poland 50% Public debt (2009, % GDP) 0% 50 60 70 80 90 Italy 50% USA 40 Germany 100% 100 110 120 Poland USA Government deficit (2009, % GDP) 0% 0 2 4 6 8 Sources: ECB, Banks Annual Reports (2009), „Credit Writedowns” (June 2010), „The Forbes Global 2000” ranking (2010) 10 12 14 16 7 Banking sector size and concentration in relation to country fiscal position Assets of the largest bank, deficit and debt (% of GDP) Banking sector size 250% Assets of the largest bank (% of GDP) Banking sector size Deficit growth/fall (2010 forecast) Assets of the largest bank (% of GDP) Debt growth (2010 forecast) Netherlands 200% 250% Netherlands 200% Belgium Belgium 150% 150% UK 100% Spain UK France Ireland France 100% Ireland Spain Italy Germany 50% Germany Italy 50% Poland Poland USA USA Public debt (2009, % GDP) 0% 40 50 60 70 80 90 100 110 120 Government deficit (2009, % GDP) 0% 0 2 4 6 8 Sources: ECB, Banks Annual Reports (2009), „Credit Writedowns” (June 2010), „The Forbes Global 2000” ranking (2010) 10 12 14 16 8 Conclusion Existing regulations and undertaken initiatives Domestic markets Problems partially addressed Cross-border issues Additional activities required Large financial institutions Area not addressed Main challenge Problem particular serious in Europe Interventions in LFI carries the risk of sovereign debt default Problematic fiscal position and extremely limited scope for intervention in a distressed bank by individual country Monetisation public debt : - can not be applied by individual country - unclear mandate for ECB - European Financial Stability Facility Vast asymmetry between actual benefits from Large Financial Institutions and potential cost of resolution 9