Banking Union: integrating components and complementary measures
Presentation: The Banking Union and the European Financial ... · The Banking Union and the...
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The Banking Union and the European Financial System
- A Swedish Perspective
State Secretary Karolina Ekholm
Presented at the Peterson Institute for International Economics
Washington, DC October 9, 2014
No clear recovery in the euro area GDP, index, 2007 Q4 = 100
Sources: Bureau of economic analysis, Eurostat and Office for National Statistics
Weaknesses in European banking sector dampening factor Per cent
0
2
4
6
8
10
12
14
16
06 07 08 09 10 11 12 13
Return on equity CET 1 capital ratio
Note. Median values based on 108 banks in the euro area that fall under the ECB's supervision, based on the criteria of total assets
Sources: SNL Financial and the Riksbank
AQR/stress tests opportunity to restore confidence
ECB has strong incentives to find weaknesses and deal with them in connection with the implementation of SSM.
According to survey by Goldman Sachs:
89 per cent view test as credible
9 banks expected to fail on average
50 bn euro in average expected capital short fall
Sweden: potentially large benefits from participating in banking union National banks’ and banking groups’ assets in relation to GDP, December 2013, per cent
Sources: ECB, the European Commission, the Swiss National Bank and the Riksbank Note. Switzerland as per december 2012.
But political obstacles to membership
Formally no proper influence over SSM decisions…
…and poor insurance protection from joint resolution fund.
Swedish banks will nevertheless fall under SSM via foreign subsidiaries Balance sheet (bn €)
Sources: Bank reports 2012 & the Riksbank
No 1 No 1 No 2 No 2 No 2 No 1
Complicated procedure for bank resolution…
…and fear that bail-in involves large contagion risks in the Swedish case
Note: Swedish banks’ total lending to the general public amounted to SEK 9000 billion at the end of the second quarter 2014. Data only covers banks’ business in Sweden
Handelsbanken
Nordea
SEB
Swedbank
Other Swedishbanks
Source: Statistics Sweden, financial markets statistics
In short…
• Strong banks are needed for economic recovery in Europe…
• …and a credible AQR is a precondition for regained confidence.
• Although the benefits from participating in a banking union in principle are high…
• …Sweden will likely stay outside for the time being…
• …but will still be affected.
• Bail-in can be a challenge (and resolution will be…).
Extra
Indicative cost for unsecured bank funding CDS-premia, basis points
Sources: Bloomberg and the Riksbank
0
100
200
300
400
500
600
700
2011 2012 2013 2014
Germany Spain France Italy Netherlands Sweden
Indicative cost for secured bank funding Yield, percentage points
Sources: Barclays and Bloomberg
0
1
2
3
4
5
6
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8
2009 2010 2011 2012 2013 2014
Italy France Spain Germany Sweden Swap rate