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10th Inter-Balkan Forum of Banking Associations 16 October 2009 - Sarajevo, Bosnia & Herzegovina European Banking Sector in a period of Global Financial and Economic Crisis Viktorija Proskurovska Adviser, Economic and Monetary Affairs and Relations with Associates of the European Banking Federation 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. www.ebf-fbe.eu 2 Reaction of banks • • • • Reflect on their weaknesses; Reduce their costs and improve returns; Clean-up their balance sheets; Adapt their business strategies. www.ebf-fbe.eu 3 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. www.ebf-fbe.eu 4 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. www.ebf-fbe.eu 5 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. www.ebf-fbe.eu 6 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. www.ebf-fbe.eu 7 Thank you! For contacts: Viktorija Proskurovska Adviser in Economic and Monetary Affairs, Associates European Banking Federation [email protected] www.ebf-fbe.eu www.ebf-fbe.eu 8