A central bank perspective on large banks in small countries and crisis resolution Oslo, 17 June 2005

1. A central bank perspective on large banks in small countries and crisis resolutionOslo, 17 June 2005 • Peter Praet • Executive Director NBB • Member of the Executive Board CBFA

2. Outline • Large banks: a specific issue for small countries? • Propagation channels : a key issue • Crisis preparation/management in cross-border setting

3. 1. Large Banks in Small Countries • No generic differences between large and small countries, although specific issues may be more challenging: • "Too big to fail" • "Too big to save" • "Too complex for efficient crisis management" • Some stylized facts : • Concentration of banking system • Importance of large banks • Share of cross-border business

4. Concentration Concentration Herfindahl ratio 5 largest Herfindahl ratio 5 largest Index banks Index banks Austria 557 44 France 597 47 Belgium 2065 83 Germany 173 22 Denmark 1114 67 Italy 240 27 Finland 2420 81 Spain 521 44 Greece 1130 67 United Kingdom 347 33 Ireland 562 44 Luxembourg 315 32 Netherlands 1744 84 Portugal 1044 63 Sweden 760 54 Source : ECB Year 2003 1. Large Banks in Small Countries • Concentration of banking sector:

5. 1. Large Banks in Small Countries • Size relative to the economy

6. 1. Large Banks in Small Countries • Share of cross-border business (Eurozone)

7. 1. Large Banks in Small Countries • Do markets perceive large banks in small countries as too big to save? • evidence from Fitch Support Rating • evidence from unsecured wholesale market

8. 2. Understanding propagation channels is key • Complex mapping • intra-group (across jurisdictions / countries) • inter-group (interbank - intercountry) • via market exposures • via market infrastructures • ... and any combination of these

9. 3. Crisis Preparation / Management • Crisis management is a race against the clock • Improvised co-operation is inefficient but... illusory to think that ex-ante agreement on burden-sharing is possible. The question is how to minimize the "prisoner's dilemma risk"? • Need to define co-operation routines that will foster: • information gathering and sharing (Article 130 of the draft CRD directive) • communication to the markets and to the institution

10. 3. Crisis Preparation / Management • Establish an operational network of home/host relevant authorities: • Know your colleagues • Check lists • Definition of pre-crisis information items • Pooling and sharing of information (know your banks) • Crisis management exercises • Network should be used to identify/discuss potential conflicts of interests • Crisis communication policy • Developing common views and actions on legal framework

11. 3. Crisis Preparation / Management • ELA in Eurosystem(April, 1999 Governing Council Agreement) • Main responsibilities lie with NCBs; ECB has key responsibility in case of a gridlock of TARGET • ELA: a matter of common interest : Disturbances spread through balance-sheet interlinkages & market dynamics