Your SlideShare is downloading. ×
 Building the European Banking Union in Times of Crisis - Ignazio Angeloni - June 25 2013
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Saving this for later?

Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime - even offline.

Text the download link to your phone

Standard text messaging rates apply

Building the European Banking Union in Times of Crisis - Ignazio Angeloni - June 25 2013

1,091
views

Published on

Building the European Banking Union in Times of Crisis - Ignazio Angeloni - June 25 2013 - First International Conference on Syrto Project

Building the European Banking Union in Times of Crisis - Ignazio Angeloni - June 25 2013 - First International Conference on Syrto Project

Published in: Economy & Finance, Business

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
1,091
On Slideshare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
12
Comments
0
Likes
1
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Building the European Banking Union in Times of Crisis SYstemic Risk TOmography: Signals, Measurements, Transmission Channels, and Policy Interventions Ignazio Angeloni European Central Bank Brescia, 25 June 2013
  • 2. 2 Weaknesses of the Maastricht blueprint • “Narrow” monetary union: one currency, independent central bank, efficient interbank market and settlement • No EU fiscal or supply-side policies • Reasons: both diplomatic and intellectual • Conflicting views on banking supervision  Complement to monetary policy, hence should be centralised  Hardwired to national politics, hence decentralised • Treaty provisions  General support to national supervision authorities  ECB may be assigned “specific” prudential supervisory tasks, by unanimous Council decision (art. 127.6)
  • 3. 3 All seemed fine until 2006 • Changeover technically seamless • Financial “integration”:  Immediate establishment of a single money market  Negligible sovereign bond spreads  Cross-border bank M/A in the early EMU years • Favourable global economic conditions • Credit boom in several euro area countries • Competitiveness gaps and current account imbalances slowly building up, easily financed by private capital flows
  • 4. 4 Sovereign spreads Dispersion of euro area ten-year sovereign bond yields (percentages) Sovereign spreads declined, especially in the countries where they had increased the most in the preceding months. Sources: Bloomberg and ECB calculations.
  • 5. 5 Target imbalances Source: ECB, NCB and IMF data and author’s calculations (P. Cour-Thimann, Target balances and the crisis in the euro area, mimeo). A positive (negative) sign reflects a net claim (liability) of the national central bank vis-à-vis the ECB in the TARGET2 payment system. Claims and liabilities (including that of the ECB) add up to zero.
  • 6. 6 International risk sharing (total time line) 0 3 6 9 12 15 18 0 5 10 15 20 25 30 Mar 2000 Nov 2000 Jul 2001 Mar 2002 Nov 2002 Jul 2003 Mar 2004 Nov 2004 Jul 2005 Mar 2006 Nov 2006 Jul 2007 Mar 2008 Nov 2008 Jul 2009 Mar 2010 Nov 2010 Jul 2011 Mar 2012 All Regions (LHS) Advanced Economies ex EZ (RHS) EMEs ex EU (RHS) Emerging Europe (RHS) Non‐distressed Euro Area (RHS) Distressed Euro Area (RHS) 0.0 0.3 0.7 1.0 1.3 1.7 2.0 0 3 6 9 12 15 18 Mar 2000 Nov 2000 Jul 2001 Mar 2002 Nov 2002 Jul 2003 Mar 2004 Nov 2004 Jul 2005 Mar 2006 Nov 2006 Jul 2007 Mar 2008 Nov 2008 Jul 2009 Mar 2010 Nov 2010 Jul 2011 Mar 2012 All Regions (LHS) Advanced Economies ex EZ (LHS) Emerging Europe (RHS) EMEs ex EU (RHS) Claims of euro area banks (USD tr.) Claims of all BIS reporting banks (USD tr.)
  • 7. 7 Fiscal-banking loop Source: ECB. Sovereign and bank CDS spreads: euro area and US (2010 – July 2013; basis points) Source: Bloomberg. Note: Average CDS spread for euro area and US LCBGs and countries where LCBGs are located. 0 50 100 150 200 250 300 350 400 450 0 50 100 150 200 250 300 350 400 450 BankCDS Sovereign CDS euro area United States
  • 8. 8 8 Bank loans to non-financial corporations (percentage change per annum) Source: ECB. Short-term interest rates on small loans (up to €1mn) to non-financial corporations (percentages per annum; rates on new business) Source: ECB. Source: ECB. National boom-bust cycles
  • 9. 9 Funding of non-financial corporations in the euro area and the United States (2002 – Q1 2012; cumulated debt shares) Source: Cour-Thimann and Winkl (2013) Total bank assets in the EU, Japan and the US (2012, EUR trillion; percentage of GDP) Source: ECB, FDIC and Bank of Japan. 0% 35% 70% 105% 140% 175% 210% 245% 280% 315% 350% 0 5 10 15 20 25 30 35 40 45 50 EU USA Japan GDP Total assets Ratio (rhs) Overbanking
  • 10. 10 Total assets of domestic banks (percentage of domestic GDP) Source: ECB. Other countriesProgramme countries Overbanking 0 100 200 300 400 500 600 CY PT GR IE NL ES FR AT DE LU IT BE 2003 2007 2012
  • 11. 11 Euro area large and complex banking groups’ risk weights for corporate and retail credit exposures (percentages; maximum, minimum, interquartile distribution and median) Sources: Individual institutions’ Pillar 3 reports and ECB calculations. Supervisory fragmentation
  • 12. 12 Problems to be addressed • Adverse loop between banks, public finances, macro performance • Financial fragmentation • Fragmented and ineffective banking supervision, national bias • Incoherent bank crisis management, no transparent burden sharing
  • 13. 13 1. Single Supervisory Mechanism (SSM) 3. Harmonised Deposit Guarantee Schemes (DGS) Common rules (EBA Single Rulebook) Common supervisory practices (SSM Supervisory Manual) Banking Union Banking Union: elements 2. Single Resolution Mechanism (SRM) 3. Harmonised Deposit Guarantee Schemes (DGS)
  • 14. 14 Geographical scope Single supervisor automatically includes all euro countries. Right to enter for the “outs” • Non-euro member states can join in “close cooperation” by:  Adopting appropriate legislation and committing to abide to any guidelines or requests by the ECB  provide all information on its credit institutions that the ECB may request • The MS may ask the ECB to terminate the close cooperation after three years (it may reapply after further three years)
  • 15. 15 Functional scope  All classic micro-prudential tools: • Authorisation of banking activity, mergers and acquisitions • Prudential requirements (own funds, large exposure limits, liquidity, leverage and disclosure, internal governance and controls, “fit and proper”, … • Supervisory reviews, stress tests, additional prudential requirements  Macro-prudential tools: • National authorities remain competent for national macro-prudential requirements (e.g. loan-to-value ratio). • For instruments in EU law (CR Directive), e.g. countercyclical and SIFI buffers:  national authorities have to notify the intended decision to the ECB  ECB can apply more stringent macro-prudential measures Other policy areas remain at national level (i.e. supervision over non-banks; anti-fraud; consumer protection)
  • 16. 16 Institutional scope Significant credit institutions: 1) size: assets >30 bn; ratio assets/GDP exceeds 20% (but >5 bn) 2) importance for the economy of the EU or any MS 3) direct financial assistance from EFSF or ESM 4) 3 largest banks in each country 5) ECB decision ECB supervision, with assistance of national authorities in the preparatory and implementing activities. National supervision with ECB controls Less significant credit institutions
  • 17. 17 4 ECB representatives4 ECB representatives One representatives of each national banking authority from participating MS (non supervisory NCBs may attend) One representatives of each national banking authority from participating MS (non supervisory NCBs may attend) Chair and Vice Chair Chair and Vice Chair Supervisory BoardSupervisory Board ECB Governing Council (no objection) ECB Governing Council (no objection) Steering Committee (10 members) Steering Committee (10 members) If a non-euro country disagrees, and the GC confirms its objection. If the latter, the country may notify the ECB that it will not be bound by it. The country may be expelled from the banking union. Governance arrangements
  • 18. 18 • Supervision separate from monetary policy • Independence • Accountability Key institutional features
  • 19. 19 Mapping of Euro Area Banking System Legal issues relating to Framework Regulation “Supervisory Model” and “Supervisory Manual” Supervisory Reporting Issues - reporting template Comprehensive review incl. a balance sheet assessment Organogram and staff (about 800 people to start, plus support) On-going preparatory work
  • 20. 20 • Why a crisis management framework:  Prevents moral hazard  Limits systemic risks • EU “bail in” framework (creditor hierarchy) • EU Bank resolution authority  Orderly bank failures  Limits taxpayer exposure • EU resolution framework (ex-ante and ex- post funding, backstop) • Depositor protection (national, for now) Crisis management framework
  • 21. 21 Conclusions Opportunities: • Break bank-fiscal interactions • Break national supervisory silos, home biases • Reduce fragmentation, improve single market • Help stabilise the euro Risks: • Weak crisis management framework • National influences may initially exert an excessive influence on the system • Transitional risks, early mistakes, reputational loss
  • 22. This project is funded by the European Union under the 7th Framework Programme (FP7-SSH/2007-2013) Grant Agreement n°320270 ! ! ! ! ! ! ! www.syrtoproject.eu This document reflects only the author’s views. The European Union is not liable for any use that may be made of the information contained therein.