A central bank perspective on large banks in small countries and crisis resolution
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A central bank perspective on large banks in small countries and crisis resolution Oslo, 17 June 2005. Peter Praet Executive Director NBB Member of the Executive Board CBFA. Outline. Large banks: a specific issue for small countries? Propagation channels : a key issue

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

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A central bank perspective on large banks in small countries and crisis resolution oslo 17 june 2005

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


Outline

Outline

  • Large banks: a specific issue for small countries?

  • Propagation channels : a key issue

  • Crisis preparation/management in cross-border setting


1 large banks in small countries

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


  • 1 large banks in small countries1

    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:


    1 large banks in small countries2

    1. Large Banks in Small Countries

    • Size relative to the economy


    1 large banks in small countries3

    1. Large Banks in Small Countries

    • Share of cross-border business (Eurozone)


    1 large banks in small countries4

    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


    2 understanding propagation channels is key

    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


    3 crisis preparation management

    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


    3 crisis preparation management1

    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


    3 crisis preparation management2

    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


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