The Banking System in the European Union –

General Terms, The Banking Union – Auditing and Supervising, The

European Central Bank

Murat, Taraneh, Frederick, Felix, Thijs

Topics

History before the Financial Crisis

The European Central bank

The Banking Union and the change of the ECB

Greece and the ECB, the IMF and Asset Backed Securitization

Future challenges of the ECB

History

Three attempts”

1. First attempt: “The Werner Report” -- 1969-1972

2. Second attempt: -- 1979

3. The start of the EMU -- 1988

European Central BankOrganization

The ECB is the central bank for Europe’s single currency,the Euro.

It was established as the core of the Euro system and the European System of the Central Banks.

It has legal personality under public international law

European Central BankHistory

Three stages to economic and monetary union :

•Stage 1 : • 1.july 1990 – Abolition of all restrictions on the movement of capital

•Stage 2 : • 1.january 1994 – Establishment of the European Monetary Institue

•Stage 3 : • 1.january 1999 – Fixing of conversion rates, ECB responsible for the monetary policy

The Changeover

Financial markets change – start Stage three – 1999

Considered as a very immediate and smooth changeover

Private individuals changeover to Euro currency -- 2002

Preparations Banks & Financial institutions

EURIBOR

(Euro Interbank Offered Rate)

EONIA

(Euro OverNight Index Average)

Mistakes EMU

Central banks with dual mandates

- Lost focus on price stability

The monetary policy influenced the level of risk-taking behaviour

European Central BankTasks

• Basic tasks• Monetary Policy• Foreign exchange operations• Portfolio management• Payment systems

• Further tasks• Banknotes• Statistics• Financial Stability & Supervision• International and European Cooperation

European Central BankDecision Making

• Governing Council

• Executive Board

• General Council

European Central BankIndependence

• Price Stability

• European Community institutions and states have no influence

• Own budget

• Prohibited for granting loans to Community bodies

• Functionally independent

European Central BankTransparency

• Central bank provides to public all relevant information

• Helps public to understand monetary policy

• Credible

• Self-disciplined

• Predictable

The Banking Union:

The single supervision mechanism (SSM)

The single resolution mechanism (SRM)

The Single Rulebook

These mechanisms are leading in all European countries

The single supervision mechanism (SSM)

Not only the same rules but also the same supervision

Are the banks dealing with the rules?

Noticing problems in an early state

The single resolution mechanism (SRM)

Single Resolution Mechanism controlled by the Single Resolution Board when a banks collapses

SRM prevents tax payers from putting their money into falling banks

The Single Rulebook

Capital Requirements

Leverage

Deposit Guarantee Schemes

The Stress test

Change of the ECB: before and after the Financial

Crisis 2002 – 2008: Lending money against minimum

conditions

2008 – 2010: The ECB introduced the fixed rate system

2010 – 2011: Lender of money to Greece, Ireland and Portugal. Interest rates went from 1.00% up to 1,50%

2011 – 2013: Soevereign debt crisis came back. Interest rates back to 0.75%

2014 interest rates to 0,00% Without these measures, banks and countries would have collapsed

Greece and the ECB, the IMF and Asset Backed

Securitization

Greece and the ECB, the IMF and Asset Backed

Securitization

Greece and the ECB, the IMF and Asset Backed

Securitization

Greece and the ECB, the IMF and Asset Backed

Securitization

Greece and the ECB, the IMF and Asset Backed

Securitization

Future Challenges for the European Banking System

“We have avoided collapse, but we need to guard against any relapse.”

Christine Lagarde

Challenges

Debt Overhang

Structural Problems

Period of Low Interest Rates

Risk of Economies of

Scope between Banks and State

Fragmentation

Debt Overhang

Period of Low Interest Rates

The sanction of the ECB

The negative impact of low interest rates to the long-term savings

Impacts on savers, borrowers & banks

Structural Problems

Banking system hinders the build-up of equity excess capacities

ECB´s Comprehensive Assessment

Market adjustment for smaller banks

Risk of Economies of Scope between Banks and State

Direct impact on the quality of assets

Reduce government securities build-up equity

Burden for the states originated through banking systems problems

Fragmentation

Banks get forced from national supervisors businesses within the country

Tighten credit crunch

Aim: standardized regulations