1
Introductory remarks
European legislative initiatives
Jerzy PruskiBank Guarantee Fund
Poland
EFDI - IADI Conference Strengthening Financial Stability – Deposit Insurance Contributions
Rome, 1 October 2010
European UnionRisk areas
2
Risk sources - main areas
3
Limiting risk requires actions in three areas:
1) domestic markets2) cross-border issues3) large financial institutions
Broad range of benefits of globalisation
• Insufficient information • Crisis contagionGlobal economy
Harmonization and common EU financial stability rules
4
Basel III
Assets transfer
„Living wills”
DGS Directive
Resolution funds
European initiatives
Domestic markets
Cross-border issues
Large financial institutions
Area not addressed
Cooperation
EU institutions, e.g.:ECB - European Central BankESRB - European Systemic Risk BoardEBA - European Banking Authority
European UnionLarge banks perspective
5
Banking sector size and concentration
6
Banking sector size to GDP (% )
478
373
360
354
329
312
168
75
502
0 100 200 300 400 500
Poland
Italy
Spain
Ireland
Belgium
France
Germany
UK
Netherlands
%
Differentiations
- banking sector asset size
- proportion of potential risk to banking sector asset size
- proportion of potential risk to GDP in different states
Sources: ECB, Banks Annual Reports (2009), „Credit Writedowns” (June 2010), „The Forbes Global 2000” ranking (2010)
12% 16%27%
39%
63% 66%
95%108% 109%
121%
170%
203%
332%
309%325%
269%243%
158%
120%107%
91%
39%43%28%
0%
50%
100%
150%
200%
250%
300%
350%
Poland
USA
South
Kor
ea
Japa
n
Germ
any
Italy
Spain
Franc
e
Irelan
dUK
Belgium
Nethe
rland
s
Assets of the largest bank group to GDPAssets of 3 largest banking groups to GDP
38%
68%65% 64%
35%39%
36%33%
28%29%
25%
15%17%
26%
46%
82%
65%63%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Poland
Germ
any
UK
Franc
e
Spain
Irelan
dIta
ly
Nethe
rland
s
Belgium
Assets of the largest bank group to banking sector balance sheet totalAssets of 3 largest banking groups to banking sector balance sheet total
Banking sector size and concentrationin relation to country fiscal position
7Sources: ECB, Banks Annual Reports (2009), „Credit Writedowns” (June 2010), „The Forbes Global 2000” ranking (2010)
-1
Assets of 3 largest banks, deficit and debt (% of GDP)
USA
Spain
Ireland
UK
France
Germany
Poland
Italy
Belgium
Netherlands
0%
50%
100%
150%
200%
250%
300%
350%
400%
40 50 60 70 80 90 100 110 120
Public debt (2009, % GDP)
Assets of 3 largest banks
(% of GDP)
Banking sector size
Debt growth(2010 forecast)
USA
Netherlands
Belgium
Italy
Poland
Germany
France
UK
Ireland
Spain
0%
50%
100%
150%
200%
250%
300%
350%
400%
0 2 4 6 8 10 12 14 16
Government deficit (2009, % GDP)
Assets of 3 largest banks
(% of GDP)
Banking sector size
Deficit growth/fall
(2010 forecast)
Banking sector size and concentrationin relation to country fiscal position
8Sources: ECB, Banks Annual Reports (2009), „Credit Writedowns” (June 2010), „The Forbes Global 2000” ranking (2010)
Assets of the largest bank, deficit and debt (% of GDP)
USA
Netherlands
Belgium
Italy
Poland
Germany
France
UK
IrelandSpain
0%
50%
100%
150%
200%
250%
40 50 60 70 80 90 100 110 120
Public debt (2009, % GDP)
Assets of the largest bank (% of GDP)
Banking sector size
Debt growth(2010 forecast)
Netherlands
Belgium
Italy
Poland
Germany
France
UK
Ireland
Spain
USA
0%
50%
100%
150%
200%
250%
0 2 4 6 8 10 12 14 16
Government deficit (2009, % GDP)
Assets of the largest bank (% of GDP)
Banking sector size
Deficit growth/fall
(2010 forecast)
Main challenge
Conclusion
9
Existing regulations and undertaken initiatives
Domestic markets
Cross-border issues
Large financial institutions
Problems partially addressed
Additional activities required
Area not addressed
Problem particular serious in Europe
Problematic fiscal position and extremely limited scope for intervention in a distressed bank by individual country
Monetisation public debt :- can not be applied by individual country- unclear mandate for ECB- European Financial Stability Facility
Vast asymmetry between actual benefits from Large Financial Institutions and potential cost of resolution
Interventions in LFI carries the risk of sovereign debt default