Banking & regulatory trends in Europe

Transcription

1 Banking & regulatory trends in Europe Stockholm, Jan Schildbach

2 Agenda Big picture: EU bank performance Regulatory trends & their impact Swedish banks 4 Outlook: Banking Union 2

3 European banks are struggling US peers enjoying record profitability Net income USD / EUR bn, up to Q Total revenues Q = 100, up to Q Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 US banks Large European banks All EU banks (quarterly share of annual data) Q Q1 06 Q1 07 Q1 08 US banks Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Large European banks Q1 14 Sources: FDIC, ECB, company reports, Sources: FDIC, company reports, 3

4 Weak asset quality and shrinking loan books in Europe Loan loss provisions USD / EUR bn, up to Q Lending to the private sector % yoy, up to Aug US banks Large European banks Sources: FDIC, company reports, US Euro area Sources: ECB, FDIC, 4

5 ... as well as margin pressure due to low interest rates Main official interest rates % 7 Net interest income EUR bn, top 20 European banks US Euroland UK H1 10 H2 H1 11 H2 H1 12 H2 H1 13 H2 H1 14 Sources: Federal Reserve, ECB, BoE Sources: Company reports, 5

6 Agenda Big picture: EU bank performance Regulatory trends & their impact Swedish banks 4 Outlook: Banking Union 6

7 Re-regulation is comprehensive and potentially overwhelming Regulatory initiatives Reduce the likelihood of shocks Higher capital requirements in terms of quantity and quality Increased minimum liquidity standards Improved transparency Contingent capital Countercyclical capital buffers Macro prudential oversight addressing system wide risk across banks Limit potential spillover effects of affected institutes Improved transparency, especially in terms of market infrastructure Levy cum funds Bankruptcy regimes Recovery and resolutions regimes (e.g. living will concept) Reform of deposit guarantee schemes Non-conducive initiatives Limitation re the size of banks Cap regarding maximum leverage ratio Re-nationalisation of international banks subsidiaries Compensation restrictions Tighter regulation of hedge funds Restriction of prop trading FTT Structural bank reforms to split up universal banks Objections Multitude of initiatives leads to complexity and uncertainty about interaction Lack of international coordination creates competitive distortions, lack of effectiveness and regulatory arbitrage Large cumulative effects increase danger of recessionary effect Increasing divergence between policy agendas adds to the risk of market (re)fragmentation Aggressive timetable Bias against large banks 7

8 Leverage down, capital up Euro-area banks' leverage ratio Total assets / equity capital Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Sources: ECB, Jun 14 Core Tier 1/Common Equity Tier 1 ratio* of Europe's 20 largest banks % Q Q Q Q Q * Basel II; Basel 2.5 applied from Q4 11 on, Basel III from Q1 14 on Sources: Company reports, Q2 14 8

9 Driven by de-risking and shrinking, not retained earnings Net income of EU-27 banks EUR bn Sources: ECB, EU banks: Change in riskweighted assets % yoy * * significant increase in RWA due to introduction of Basel 2.5 Sources: ECB, 9

10 Corporate borrowing is partly shifting to capital markets Loans to the private sector in the euro area % yoy Households Sources: ECB, Non-financial corporations Non-financial firms in the EMU: Cumulative change in outstanding funding instruments EUR bn, January 2009 = Loans* Bonds** * Including loans transferred to national bad bank in Spain in Dec 12. ** Adjusted for reclassification of issuers in Germany in Jan 11. Sources: ECB, 10

11 ... as banks are also unable to securitise loans European securitisation issuance EUR bn European securitisation issuance by retention EUR bn Source: AFME H1 14 ann. Placed Retained Sources: AFME, 11

12 Cross-border banking on the retreat, too Market share of foreign-owned banks in the EU-27 % of total assets EU banks Sources: ECB, Banks from third countries Foreign claims of European banks by reporting country March 2008 = Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 DE FR UK ES SE Sources: BIS, 12

13 Funding: Stronger focus on deposits Customer deposits in % of total assets 60 Loan-deposit ratio with non-banks % DE FR IT ES EMU Sources: ECB, DE FR IT ES EMU Sources: ECB, 13

14 Overall, Europe s influence in global finance is declining; EM financial centres gain in importance European banks losing ground Market cap of the world's 25 largest banks by region 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% US Japan Emerging markets As of mid-june each year, 2014: Oct 6 Europe Other developed countries Sources: Bloomberg, The Banker, Thomson, DB Rank GFCI 2014 GFCI 2007 New York 1 2 London 2 1 Hong Kong 3 3 Singapore 4 4 Zurich 5 5 Tokyo 6 9 Seoul 7 43 Boston 8 14 Geneva 9 10 San Francisco Frankfurt 11 6 Luxembourg Washington D.C Toronto Chicago 15 8 Montreal Vancouver Shenzhen 18 - Vienna Shanghai Tel Aviv 21 - Calgary 22 - Sydney 23 7 Monaco 24 - Buenos Aires 25 - Qatar 26 - Busan 27 - Munich 28 - Dubai Stockholm Sources: Z/Yen, CityUK 14

15 Agenda Big picture: EU bank performance Regulatory trends & their impact Swedish banks 4 Outlook: Banking Union 15

16 Swedish banks are highly profitable and efficient 16

17 ... with growing business volumes a rare exception 17

18 ... but strong reliance on market funding and relatively high absolute leverage 18

19 Agenda Big picture: EU bank performance Regulatory trends & their impact Swedish banks 4 Outlook: Banking Union 19

20 Banking Union: The ESFS Comprehensive approach, but multiple players European System of Financial Supervision (ESFS) ESRB (Frankfurt/M) SSM European Supervisory Authorities (ESAs) ECB (Fft/M.) National competent authorities EBA (London) ESMA (Paris) Joint Committee of the ESAs (incl. Sub-Committee on Financial Conglomerates) Board of Appeal (6 members, 2 each nominated by each ESA Mgt. Board) EIOPA (Frankfurt/M) 20

21 Interdependence of financial and budget (in)stability support for financial firms lower tax revenues higher expenditure Financial instability Budget instability potential default of sovereign debtors concerns on inflation 21

22 Breaking the bank-sovereign nexus How? Financial sector rescue must not fall on national budget! Financial instability Budget instability How? Funding and assets should be diversified! 22

23 BU elements are interdependent: Common supervision needs complementary resolution arrangements 23

24 BU framework established, implementation under way Motivation: Breaking the link between financial and fiscal instability Securing the single financial market; avoiding (re-)fragmentation Necessary elements Status quo Single Rule Book - incl.crd IV /CRR, deposit insurance and resolution - some progress, not perfect. Single Supervisory Mechanism (SSM) To start November 2014 for 120 significant credit institutions (85% of assets) the ECB will be in charge directly; for others joined responsibility with national authorities Precondition: comprehensive assessment (supervisory risk assessment, AQR, stress test) currently under way with results expected end of Oct Single Resolution Mechanism (SRM) Single Resolution Fund (SRF) basis: common rules for resolution, crisis prevention; bail-in as basic principle instead of bail-out > agreement reached and new rules being implemented Single resolution mechanism: agreement to set up a joint mechanism to decide about resolution incl. financing so far only national funds in some member states SRF: Common resolution fund financed by banks; 55bn target level to be reached over 8 years, gradual mutualization of compartments Current critical issues: Communication of AQR results: ensure dialogue with ECB, appropriate validation, transparent & robust process Detailed rules for calculation of fund contributions 24

25 Contact Banking, Financial Markets, Regulation Taunusanlage 12 D Frankfurt/Main Phone: Internet:

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