role of deposit insurance in bank resolution framework – lessons from the financial crisis
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Role of Deposit Insurance in Bank Resolution Framework – Lessons from the Financial Crisis Session III – Lessons from Financial Crisis for Bank Resolution: US and European Experience Jerzy Pruski – President of the Bank Guarantee Fund. J odhpur , INDIA , 14 th November 2011. - PowerPoint PPT PresentationTRANSCRIPT
Role of Deposit Insurance in Bank Resolution Framework – Lessons from the Financial Crisis
Session III – Lessons from Financial Crisis for Bank Resolution: US and European Experience
Jerzy Pruski – President of the Bank Guarantee Fund
Jodhpur, INDIA, 14th November 2011
Jodhpur 13-16th November 2011 3
USA
Europe
3
Market experiences
1933Systemic organization of the small bank market
First experiences regarding resolution of big banks
Financial crisis 2008
Lack of any institutional solutions
First institutional solutions come into existence
Gaining limited experience
Asia 1997Lack of any institutional solutions
Gaining significant experience regarding resolution of big banks
Jodhpur 13-16th November 2011 4
Jurisdiction of FDIC
State banks
• Mainly under FDIC supervision• A large number of small entities active
on local markets• 73% of banks in the USA accounting
for 30% of total assets within the sector
FDIC mitigates the risk of instability in ¾ of the banking sector due to the number of banks
Number of banks Total assets
Shar
eN
umbe
r / v
olum
e
27%
73%70%
30%
Federal banks State banks
2 052
5 605
0
1 000
2 000
3 000
4 000
5 000
6 000
9 354 bn $
3 968 bn $
0
2 000
4 000
6 000
8 000
10 000
Jodhpur 13-16th November 2011 5
150,8
70,3
62,5
57,7
38,9
32,3
30,9
29,9
29,5
22,4
0 20 40 60 80 100 120 140 160
Suma bilansowa w mld $
4 705 banków
...
1 631,6
1 482,3
1 154,3
1 102,3
302,3
256,6
196,7
181,9
181,1
168,7
0 200 400 600 800 1 000 1 200 1 400 1 600 1 800
Suma bilansowa w mld $
... 2 932 banki
0,5%
0,2%
5,0%
10,0%
2,0%
2 932 banks
Total assets in bn $
5
Applying acquired experience to bigger banks
5
* FRB - Federal Reserve, OCC - Office of the Comptroller of the Currency, OTS - Office of Thrift Supervision
36,6% GDP
1,0% PKB USA
Największe banki stanowe(pod nadzorem FDIC)
Washington Mutual in terms of asset volume was comparable to the biggest banks on the market
The example of Washington Mutual demonstrates the capacity to apply the experience gained from dealing with small banks to measures directed towards significant market players
Resolution średnie aktywa 0,9 mld $
FDIC possesses both competence and tools with respect to resolution
The WM case demonstrated the capacity of using these tools with respect to a big financial institution
Significance of practical capabilities of FDIC
3 27
140157
341,6
170,996,7
2,60
20
40
60
80
100
120
140
160
2007 2008 2009 20100
50
100
150
200
250
300
350
400
Number of resolved banks Total assets of resolved banks (bn $)
Position of Washington Mutual
Jodhpur 13-16th November 2011 66
Risks connected with the structure of the banking sectorEuropean examples
Jodhpur 13-16th November 2011 7
Belgium
France
Austria
Estonia
Slovakia
SloveniaBulgaria
Malta
Latvia
RomaniaCzech Rep.
Greece
Lithuania
Portugal
Denmark
Sweden
Hungary
UK
Netherlands
Spain
Finland
Ireland
Poland
Italy
Germany
0
5
10
15
20
25
30
35
0 10 000 20 000 30 000 40 000 50 000
GDP per capita (EUR)
Luxem. (28,4; 82 100)
outside the scale
outside the scale
Cyprus (72,7; 21 700)
Number of banks per 10 bn EUR of
GDP
Belgium
Cyprus
France
Austria
Estonia Slovakia Slovenia
BulgariaMalta
Latvia
Romania Czech Rep.
Greece
Lithuania
Portugal DenmarkSweden
Hungary UK
NetherlandsSpain
Finland
Ireland
Poland Italy
0
100
200
300
400
500
600
700
800
900
1000
0 10 000 20 000 30 000 40 000 50 000
GDP per capita (EUR)
Number of banks
Germany (1819; 30 600)
Luxem.(118; 82 100)
outside the scale
outside the scale
Need for resolution in the EU
In Europe there is a need to create tools regulating fractionalized sectors and mitigating risk introduced by big banks
Resolution tools needed due to the large number of small banks
There is a need for solutions that neutralize the risk of market destabilization by big banks
2010 2010
Jodhpur 13-16th November 2011 8
15 22 24 26 29 33 36 48
127
133 180 239
254
255
635 685
697 750
1819
143
461
148
77
7 36
118
318
0
500
1 000
1 500
2 000
Est
onia
Slo
vaki
a
Slo
veni
a
Bul
garia
Mal
ta
Latv
ia
Rom
ania
Cze
ch R
ep.
Gre
ece
Bel
gium
Lith
uani
a
Luxe
m.
Cyp
rus
Por
tuga
l
Den
mar
k
Sw
eden
Hun
gary UK
Net
herla
nds
Spa
in
Finl
and
Irela
nd
Fran
ce
Pol
and
Italy
Aus
tria
Ger
man
y
Europe – challenges regarding the gradual development of resolution
>500 banks
1) European bank systems are highly diversified
2) In many countries there is strong motivation to create resolution for small banks – it enables a gradual building up of competencies regarding resolution (similar to FDIC)
3) Differences between sectors create significant barriers in harmonization of solutions
Number of banks – 2010
Limited motivation to create resolution
for small banks
In Europe there are barriers to the gradual development of resolution based on tools that can be used with respect to small banks
Jodhpur 13-16th November 2011 1010
The SIFI problem is particularly pronounced in Europe
The importance of the SIFI problem
0 1000 2000 3000 4000 5000 6000 7000
USA
UK
France
Japan
China
Germany
Italy
Switzerland
Spain
Netherlands
Australia
Belgium
Canada
Sweden
EUR bn
Europe
Northern America
Asia
Other
Source: "Forbes Global 2000" rank, consisting of 40 largest world banks - 2009
0% 50% 100% 150% 200% 250% 300% 350% 400%
Switzerland
UK
France
Belgium
Netherlands
Sweden
Australia
Spain
Italy
Germany
Japan
Canada
USA
China
Assets/GDP
Europe
Northern America
Asia
Other
40 largest World banks by assets to GDP Largest banks by assets
Jodhpur 13-16th November 2011 1111
Risk of transferring country risk to the banking sector
Italy – correlation of bank CDS and country CDSItaly – changes to bank CDS and country CDS over time
Bank risk is connected with country risk
Jodhpur 13-16th November 2011 1212
Europe – the financial aspect of cross-border problems
The picture of cross-border problems on the example of the need for European bank recapitalization
Core Tier 1 Temporary buffer
AT 2,938 224 BE 4,143 5,634 CY 3,587 3,085 DE 5,184 7,687 DK 47 35 ES 26,161 6,29 FI 0 3 FR 8,844 3,55 GB 0 0 GR 30 / HU 0 43 I E 0 25 I T 14,771 9,491 LU 0 0 MT 0 0 NL 0 99 NO 1,312 0 PT 7,804 4,432 SE 1,359 4 Sl 297 20
Total 106,447
Country Capital requirements
(in millions EUR)