Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Financial crisis of 2007–2008 wikipedia , lookup
Asset-backed commercial paper program wikipedia , lookup
Troubled Asset Relief Program wikipedia , lookup
Systemic risk wikipedia , lookup
Financial crisis wikipedia , lookup
Fractional-reserve banking wikipedia , lookup
Systemically important financial institution wikipedia , lookup
Financial Crisis: The Role of Deposit Insurance Session 3 Bank Resolution Jerzy Pruski – President of the Bank Guarantee Fund Basel, 9th June 2011 1 Resolution Crisis Containment Costs and Instruments Used Basel 8-9th June 2011 2 Crisis Containment Costs The capacity to minimize crisis containment costs is shaping up to be a major challenge for developed nations The financial crisis of 2008-2009 has shown that crisis containment costs are on the rise, particularly for taxpayers Public debt to GDP relation (%) % GDP 90 EA USA UK TREND 80 70 60 50 Source: IMF – Crisis management and resolution 40 30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Basel 8-9th June 2011 3 Resolution as a Way of Limiting Crisis Response Costs Fiscal burden and systemic repercussions of actions taken against insolvent banks based on Čihák & Nier (2009) Fiscal Costs Bailout Benefits of resolution process 1. Reduction of the systemic risk of potential bankruptcy Traditional Solutions 2. Regulators assume control 3. Reduction of burden on taxpayers 4. Costs borne by existing shareholders Disorderly Bankruptcy 5. Reduces moral hazard and increases market discipline Resolution Systemic Risk (instability) Basel 8-9th June 2011 4 Possibilities and restrictions in instrument use Possibility of using private sector solution Risk associated with resolution Deposit Insurance Fund Empirical evidence of resolution High Many potential buyers on the market Available Possible to accumulate the required funds within the DGS Considerable Broad experience of the FDIC in the US market, though other countries have also employed similar solutions Low Ability to carry out the process quickly and efficiently. It does not generate any systemic risk for the country in question National, systemically significant Depends on the conditions prevalent in the given country and its financial markets Limited capacity High cost of accumulating the required funds Limited Some FDIC experience in the US and limited experience in selected countries Limited Depends on the way it is carried out. May result in systemic risk for the country in question Multinational Very limited Can only be taken over by a larger financial institution (if such exists), leading to a rise in systemic risk No scope for accumulating them Required amounts exceed the capacity of a single country Almost non-existent The most common solution was nationalization High Generates systemic risk in the home country, but also causes turbulence in international markets Size of bank Small local According to FDIC resolution can be an effective process to reduce negative results of multinational banks insolvency Basel 8-9th June 2011 5 Austria X Belgium X Selected Asset Relief Measures X Nationalizations Guarantees during Recent and Past Crises – European market Asset purchase Significant restructuring Country Extensive liquidity support Instruments used in instances of insolvency X X X X Denmark X X X Germany X X X Iceland X X X X Ireland X X X X Latvia X X X Luxemboug X X X X Netherlands X X X X Ukraine X X UK X X X X X USA X X X X X Type of Measure Country X AMCs / asset purchases Asset Types Amount ($ bln) Amount (% of GDP) Belgium Dexia KBC Fortis Structured Assets 10,5 33,5 29,4 2,2 7,1 6,2 Germany West LB Bayern LB LBBW Structured Assets 7,0 6,7 21,7 0,2 0,2 0,6 Netherlands ING RMBS, mortgage loans 35,1 4,4 UK RBS Lloyds Pools of assets 524,0 483,0 24,0 22,2 Belgium Fortis Structured Assets 28,7 6,0 Germany West LB Toxic and non-toxic Assets 107,8 3,2 Belgium Fortis Structured Assets 28,7 6,0 Ireland Banks Distressed real estate-related 98,7 44,0 UK Northern Rock Bradford&Bingley Mortgage loans and other loans 121,6 79,3 5,6 3,6 Asset quarantees “Bad banks” Beneficiaries Source : IMF Basel 8-9th June 2011 6 Containment and Resolution Policies past crises* Bank holidays recent crisis** Asset Management Companies Deposit Freezes Increase in deposit guarantees Bank Recapitalization with Public Funds Significant addtional guarantees Nationalizations All liabilities guaranteed Asset Purchases Asset guarantees **Recent crisis (2007-2009) – 12 countries: Austria, Belgium, Denmark, Germany, Iceland, Ireland, Latvia, Luxembourg, the Netherlands, Ukraine, the United Kingdom, and the United States. Source : IMF Basel *Past crises (1991-2002) – 17 countries: Finland, Norway, Sweden, Brazil, Mexico, and Jamaica, Indonesia, Japan, Korea, Malaysia, Thailand, Colombia, Ecuador, Russia, Turkey, Argentina and Uruguay. 8-9th June 2011 7 Resolution of small banks Multifaceted importance Basel 8-9th June 2011 8 Concentration of the US banking sector Liczba Number ofbanków banks Udział SharewinPKB GDP 12,6% 7 581 (99,0%) 53 (0,7%) Suma assets bilansowa mld $ $ Total in wbillion 7,4% 1 853 (13,9%) 12,0% 10 (0,13%) 3 252 (24,4%) 4 (0,05%) (0,1%;0,5%> Average total assets in billion $$ Średnia suma bilansowa w mld >5,0% 1 343 (1,0%;5,0%> 195,1 (0,5%;1,0%> (0;0,1%> 35,0 0,4 0 Basel 400 36,6% (0,5%;1,0%> (1,0%;5,0%> 5 370 (40,3%) >5,0% • The number of banks with assets amounting to less than 0.01% of GDP exceeds 7 500. These banks are distributed throughout the region. • These banks’ assets comprise nearly 25% of the total assets of the entire US banking sector, therefore: 109,0 (0,1%;0,5%> 1 756 (13,2%) 31,3% 9 (0,12%) (0;0,1%> 1 090 (8,2%) 800 1 200 1 600 − the likelihood is high of a case of insolvency emerging among this group, − the financial ramifications of the degree of effectiveness of managing bank liquidations among this group are significant 8-9th June 2011 9 The problem of insolvency among US banks • In the US, resolution of small state banks is carried out effectively thanks to the extensive experience and institutional competence of the FDIC • In terms of big banks, there was a lack of adequate tools and experience – hence public funds were employed Remaining banks Banks supervised by the FDIC The FDIC has at its disposal both tools and competencies with respect to liquidating small banks 160 Resolution Lack of ready solutions to carry out a resolution process. One of two solutions is possible: 140 350 120 300 100 250 80 341,6 60 40 3 2,6 assets: $639 billion 150 100 170,9 20 Bankruptcy 200 157 140 Lehman Brothers 400 Average assets: $0.9 bn* 96,7 27 0 50 Using public funds American International Group Citigroup Bank of America 0 2007 2008 Number of closed banks 2009 2010 Average assets: $1200 billion Assests of closed banks ($ bn) *Excluding Washington Mutual Bank Basel 8-9th June 2011 10 Opportunities for resolution with respect to small banks in Europe 35 Germany Number of banks 1000 Number of banks per 10 bn EUR of GDP (1819; 30 600) outside the scale range 900 Cyprus (72,7; 21 700) outside the scale range Ireland 30 Luxem. (28,4; Lithuania 82 100) 800 Austria Austria Poland 700 outside the scale range 25 Italy Large number of banks France 600 Poland 20 FinlandSector is Hungary 500 Ireland fractionalized Latvia 15 400 Finland 300 Spain Hungary 200 Romania Bulgaria Lithuania Czech Rep. Malta Denmark Sweden Cyprus Luxem. (118; 82 100) outside the scale range Belgium Greece 0 0 Latvia 10 000 20 000 Estonia Slovakia Slovenia Portugal Bulgaria UK Portugal 100 10 Netherlands 30 000 40 000 50 000 Estonia 5 Romania Germany Denmark Netherlands Italy Sweden Spain France Concentration Slovenia Malta Czech Rep. Slovakia Greece 0 0 10 000 GDP per capita (EUR) 20 000 of big banks Belgium UK 30 000 40 000 50 000 GDP per capita (EUR) • The financial sector in many European countries is significantly fractionalized • A large number of small banks operate in these markets • As in the US, there is economic justification for employing resolution tools to liquidate these types of banks in the event of insolvency Basel 8-9th June 2011 11 Big Bank Risks Basel 8-9th June 2011 12 Location of the biggest banks 40 largest world banks assets by country 0 1000 2000 3000 4000 5000 6000 7000 8000 USA EUR bn UK France Japan The problem of big banks is a primarily European problem China Germany Italy Europe Northern America Asia Other Switzerland Spain Netherlands The majority of the 40 biggest banks in the world are situated in Europe Australia Belgium Canada Sweden Source: "Forbes Global 2000" rank, consisting of 40 largest world banks Largest banks assets to GDP 0% 50% 100% 150% 200% 250% 300% 350% 400% 450% Switzerland The assets of Europe’s biggest banks markedly exceed the GDP of their home countries UK Assets/GDP France Belgium Netherlands Sweden Australia Spain Europe Northern America Asia Other Italy Germany Japan In non-European countries, the assets of the biggest banks do not exceed the GDP of those countries Canada USA China Source: "Forbes Global 2000" rank, consisting of 40 largest world banks Basel 8-9th June 2011 13 Changes in the banking system The period preceding the financial crisis of 2008-2009 was characterized by a systematic rise in the risk of insolvency of big banks, mainly European ones Rise in leverage Basel Rapid rise in both regular assets and non credit-obligation assets 8-9th June 2011 Liquid Assets / short term non-Deposit Liabilities 14 Funding Risk Consolidated International claims of reporting BIS banks vis-à-vis banks, immediate borrower basis (trillions of US$) $10T Funding structure Commercial paper, medium-term notes, asset-backed commercial paper, a-b securities, repurchase agreements, total return swaps, hybrid and repos, ABS CDOs etc all countries Shadow bank Liabilities developed countries 5 years Europe x3 $8T $6T $4T Traditional bank Liabilities 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source : IMF The development of the international market for funding instruments should remain under tight supervision The market for wholesale funding instruments has surpassed the traditional market of financing banking activities The size of the market is conducive to transferring country risk and financial market risk between different geographical regions By contrast with traditional liabilities, these new instruments introduce significant risk to the banking sector Basel 8-9th June 2011 15 Funding Risk (2) Net Stable Funding Ratio • The high risk associated with operational funding is generated by large European banks • These banks have a limited pool of stable sources of funding • For a large proportion of this group, the credit volume exceeds the volume of deposits by a factor of 2.5 • Operational funding is carried out by means of wholesale financing NSFR Net Stable Funding Ratio (NSFR) is a ratio of available to required stable funding Basel 8-9th June 2011 16 Poor capital base Equity/assets 14 2009 2009 Equity/Assets 2,0 ROA ROA 2009 2009 Malta 1,8 Bulgaria 13 Low risk Hungary 1,6 12 Czech Republic 1,4 Poland 11 Malta 1,2 10 Slovakia 9 Bulgaria 1,0 Romania 0,8 Czech Republic 8 Slovenia Italy Poland High risk Latvia Hungary 7 Estonia Austria Greece Portugal Spain 6 outside the scale range Netherlands Cyprus Finland Lithuania Luxembourg (5,4; 23,0) Ireland France 5 0,6 Belgium 0,4 Cyprus Spain Luxembourg (0,4; 23,0) Portugal Italy 0,2 Austria Slovenia France UK outside the scale range Sweden Greece Netherlands 0,0 Denmark 4 Slovakia Finland Romania UK Germany Sweden … Germany Denmark Belgium -0,2 3 Ireland -1,7 -0,4 0 2 4 6 8 10 12 0 2 4 Assets/GDP • the size of the banking sector relative to GDP • poor capital security of banks Basel 8 10 12 Assets/GDP Assets/GDP A significant source of risk is the confluence of two threats: 6 Assets/GDP Materialization of risk Large banking sectors with a concomitant low capital security demonstrated the lowest capacity to withstand the financial crisis 8-9th June 2011 17 Limited capacity to employ public funds Relying on public funds in the event of insolvency of Europe's biggest banks is practically impossible due to the fiscal condition of the countries involved 3 largest banks assets, deficit and debt (% of GDP) Banking sector size 400% Debt growth (2010 forecast) 350% 400% 3 largest banks assets (% GDP) 350% Netherlands UK Belgium 300% Netherlands 300% UK Belgium Ireland Ireland 250% Banking sector size Deficit growth/fall (2010 forecast) 3 largest banks assets (% GDP) -1 250% France France 200% 200% Spain Spain 150% 150% Italy Germany 100% Poland 50% Germany 100% Italy 50% USA USA Poland Public debt (% GDP) Government deficit (% GDP) 0% 0% 40 50 60 70 80 90 100 110 120 0 2 4 6 8 10 12 14 16 Used data - 2009 Basel 8-9th 25th May June2011 2011 18 Conclusions Basel 8-9th June 2011 19 Mitigating the risk: „too big to fail” Need for healthy public finances Regulatory framework Macroprudential Minimizing the cost of insolvency Increased capital requirements Special Resolution Regime Increased liquidity requirements Prevention Early intervention Resolution The problem of „too big to fail” remains Mitigating the risk of negative impact of business on the country and on markets Basel Balance sheet restructurization and re-engineering individual banks to ensure a secure business model Creating a secure structure for the banking sector 8-9th June 2011 20 DGS: a leading institution in banking resolution Resolution Economies of scale Positive international empirical evidence Homogenous responsibility Strengthening of the economic growth Cost reduction of bank failure Employment of crises management tools Common public interest Strengthening of the financial stability (one fund smaller than the sum of two separate funds) Higher protection of consumers Deposit Insurance Basel 8-9th June 2011 21 Robust domestic stability network as prerequisite for effective cross-border safety net Ministry of Finance Central Bank Financial Services Authority Basel Central Bank/ ? Macroprudential strong & complete domestic financial stability system Deposit Guarantee Scheme 8-9th June 2011 Resolution & pay-box 22 Discussion Basel 8-9th June 2011 23