Financial Services Financial Services Challenges and ProspectsChallenges and Prospects

Eurofound Breakfast Debate hosted by Pervenche Berès

European Parliament

13 October 2010

ProgrammeProgramme

Opening Pervenche Berès Chair, Employment and Social Affairs Committee Jorma Karppinen Director, Eurofound

Financial Services: Challenges and Prospects Speakers: Radoslaw Owczarzak Research Manager, Eurofound

Kurt Vogler-Ludwig Managing Director, Economix

Commentators: Oliver Roethig Head of UNI Europa Finance Arnold Kuijpers Managing Director, Rabobank

Exchange with participants

The impact of investment funds on restructuring practices and employment

Donald Storrie Head of Unit, Eurofound

Exchange with participants

Closing Jorma Karppinen Director, Eurofound Pervenche Berès Chair, Employment and Social Affairs Committee

Financial Services - Challenges and Financial Services - Challenges and ProspectsProspects

Radoslaw Owczarzak

Research Manager, Eurofound

Financial Services - Challenges and Financial Services - Challenges and ProspectsProspects

Kurt Vogler-Ludwig

Managing Director, Economix

Source: Eurostat (LFS)

Employment change Employment change I/2008 – I/2010 I/2008 – I/2010

EU27EU27

% change

Source: Economix

Adaptation to the crisisAdaptation to the crisisin European bankingin European banking

● Significant deleveraging and substantial write-downs on risky assets

● Declining profits rates

● Downsizing of state-owned banks

● Partial concentration on retail and commercial banking

● Partial revival of investment banking

● Reform of remuneration systems (deferred payments)

● Advance of risk assessment tools

● Substantial job cuts (-5 %)

Current business modelsCurrent business models

Liberalapproach

Sustainableapproach

State-ownershipapproach

Profit orientation Client orientation Policy stake Restructuring of activities Proprietary trading

Retail and commercial banking

Globalisation Job cuts Main target Leading (global)

financial service provider

Quality services with strong customer

commitment

Leading (national) retail and commercial

financial service provider

strong medium weak

Source: Economix

Financial market regulationFinancial market regulation

EU USA G20Prudential rules

Capital Requirements Directive

Tighter rules for core tier 1 capital;

Lower leverage ratiosTaxes and levies Divers

national regulation Bank levy of $ 117 bn

Guarantee funds European Financial Stabilisation Mechanism

(€ 750 bn);National funds

Strengthening of IMF

Restructuring Partial separation of investment banking

Consumer protection Divers national regulation

Consumer Financial Protection Bureau

Compensation schemes Divers national regulation

Advanced shareholder rights

Sustainable compensation rules

Supervisory boards European System of Financial Supervision

Financial Stability Oversight Council

Risk monitoring European Systemic Risk Board

Living wills for complex institutions Financial Stability Board

Derivatives markets Alternative Investment Funds Directive Central trading platforms Supervision of hedge funds

Rating agencies EU Commission proposal Office of Credit Ratings Tighter rules

Source: Economix

Drivers of scenariosDrivers of scenarios

Source: Economix

Three scenarios for Three scenarios for the European financial services sectorthe European financial services sector

● The past is the future – a high-risk scenario

● A new world order for financial markets – the end of the golden age

● Divided economies – a worst case scenario

The past is the futureThe past is the future – a high-risk scenario – a high-risk scenario

AssumptionsRegulation WeakProfit orientation StrongTrading StrongLabour productivity increase

High

Risk assessment SophisticatedEconomies of scale HighM&A High Impact on- liberal FI + + +- sustainable FI +- state-owned FI - insurance =Employment Working conditions Rising efficiency standardsSocial dialogue DifficultRisk of instability High

Source: Economix

A new world order for financial marketsA new world order for financial markets – the end of the golden age – the end of the golden age

AssumptionsRegulation StrongProfit orientation LimitedTrading LowLabour productivity increase

Low

Risk assessment StrongEconomies of scale MediumM&A WeakImpact on- liberal FI - sustainable FI + + +- state-owned FI - insurance + +Employment Working conditions Competence enhancementSocial dialogue Rising impactRisk of instability Low

Source: Economix

Divided economiesDivided economies – a worst case scenario – a worst case scenario

AssumptionsRegulation WeakProfit orientation Strong and weakTrading Strong and weakLabour productivity increase

High and low

Risk assessment Weak and strongEconomies of scale High and lowM&A High and lowImpact on- liberal FI ++- sustainable FI ++- state-owned FI - insurance =Employment Working conditions Strong differencesSocial dialogue Very difficult and strongly integratedRisk of instability Very high

Source: Economix

The impact of investment funds on The impact of investment funds on restructuring practices and employmentrestructuring practices and employment

Donald Storrie

Head of Unit, Employment and Competitiveness, Eurofound