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European Banking Sector in a period of Global Financial and Economic Crisis

10 th Inter-Balkan Forum of Banking Associations 16 October 2009 - Sarajevo, Bosnia & Herzegovina. European Banking Sector in a period of Global Financial and Economic Crisis. Viktorija Proskurovska

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European Banking Sector in a period of Global Financial and Economic Crisis

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  1. 10th Inter-Balkan Forum of Banking Associations 16 October 2009 - Sarajevo, Bosnia & Herzegovina European Banking Sectorin a period of Global Financial and Economic Crisis Viktorija Proskurovska Adviser, Economic and Monetary Affairs and Relations with Associates of the European Banking Federation

  2. Significance of the crisis • Evaporation of liquidity in the inter-banking market; • Bankruptcies of financial giants, causing systemic risk; • Loss of public trust in the financial sector; • Deterioration in general economic conditions; • Increase of the government share in the private sector (causing unlevel playing field). Global estimated loss: USD 3.4 trillion (about € 2.3 trillion). EU GDP might fall by 4% in 2009, US GDP may decrease 2.6% in 2009. www.ebf-fbe.eu

  3. Reaction of banks • Reflect on their weaknesses; • Reduce their costs and improve returns; • Clean-up their balance sheets; • Adapt their business strategies. www.ebf-fbe.eu

  4. Reaction of the ECB and national governments More liquidity and capital: • Euro-area Governments committed about 35% of GDP to financial sector support measures; • Eurosystem’s balance sheet had almost doubled. Negative consequence: • Increased public ownership in the EU banking sector. www.ebf-fbe.eu

  5. Regulatory response by the European Commission EU Commission is working on the body of legislation on: • supervisory architecture; • capital requirements; • accounting principles; • remuneration policies; • hedge funds, UCITS, etc. Aim:to ensure the right incentives, reduce gold-plating, and strengthen risk management and prudential oversight. www.ebf-fbe.eu

  6. The EURO • Benefits of euro membership: • confidence in the currency (avoid sharp devaluation during crisis); • ECB measures to enhance market liquidity enabled euro area countries to avoid a credit squeeze. • Challenges: • Differences in the pricing of euro member countries’ debt and credit default insurance have widened. www.ebf-fbe.eu

  7. Conclusion Current EU-level priorities are: • Need for effective government exit strategies; • ECB to continue facilitating the working of financial markets; • EU authorities to finalise their proposal for the Regulation on banking supervision; • banks to continue their operations while reforming internal procedures. www.ebf-fbe.eu

  8. Thank you! For contacts: Viktorija Proskurovska Adviser in Economic and Monetary Affairs, Associates European Banking Federation v.proskurovska@ebf-fbe.eu www.ebf-fbe.eu www.ebf-fbe.eu

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