Small European economies weathering the storm of the financial and economic crisis EFTA parliamentary Committee p y Brussels, 16 November 2011 1
Small European economies a h homogeneous group? ? • Inside / outside the EU EEA or not? (single passport State • Inside / outside the EU, EEA or not? (single passport, State Aid) • Economic structure and GDP per capita p p • degree of openness • Fiscal space • Link to the Euro • size of the financial sector • administrative capacity (state, supervisors, central banks) administrative capacity (state supervisors central banks) 2
CRD IV core part of Commission response to crisis CRD IV (incl. corporate governance and sanctions) ti ) EU framework for crisis management and CRD II & CRD III resolution Overhaul of the EU supervisory MIFID and MAD review, Stress test architecture short selling s o t se g Credit Rating Agency Credit Rating Agency AIFM, DGS, AIFM, DGS, Regulation, External mortgage credit, Derivatives (EMIR) FICOD, protection Audit schemes, remuneration… 3
Main Drivers CRD I V proposal Main Drivers CRD I V proposal • Financial Stability and Sustainable Growth • Financial Stability and Sustainable Growth • Unprecedented State Aid to European banks: Euro 3.6 trillion • Basel 3 agreement: December 2010 Basel 3 agreement: December 2010 • G20 agreement to implement Basel 3 • Single Rule Book European Council Decision: June 2009 • Review of the existing CRD legislation 4
Legislative proposal on CRD IV - what? REGULATION DIRECTIVE where interlinkages with national laws are particularly important CAPITAL Increase quantity/Improve quality + CAPITAL BUFFERS LIQUIDITY Resilience to funding risks + LEVERAGE CORPORATE Backstop p RATIO RATIO GOVERNANCE COUNTER- + Higher capital charge - derivatives PARTY CREDIT RISK SANCTIONS SINGLE RULE SINGLE RULE Maximum harmonisation BOOK + ENHANCED SUPERVISION 5
I mpact Assessment I mpact Assessment • Different impact on the RWAs of Big (+25%) and Small Banks p g ( ) (+4%) • Phasing in from 2013 to 2019 • Overall funding needs by 2019 about 460 billion • Overall funding needs by 2019 about 460 billion • Long-term economic benefits (0.3% to 2% of EU annual GDP) • Slight increase in loan rates: 0.29% and moderate decrease i in the stock of loans 1.8% h k f l 1 8% 6
C a e ges Challenges Legislative process Legislative process Adoption before January 2013 – Council (has started) – European Parliament (vote April 2012 ECON July Plenary) E P li ( A il 2012 ECON J l Pl ) EBA Developing draft regulatory (76) and implementing technical standards (32) and guidelines (20) + Commission ( ) g ( ) has to adopt Interplay crisis (sovereigns, SIFIs?) 7
Specific issues for small economies from CRD I V CRD I V + other th • Single passport • Single passport - systemically important branches - home systemically important branches home host issues • Liquidity subgroups host countries q y g p • Countercyclical capital buffer (LU) • Limited supervisory capacity -> high capital and liquidity requirements? i t ? • Leverage ratio (if low risk business model) • Not in CRD IV: Structural measures Bank resolvability • Not in CRD IV: Structural measures, Bank resolvability 8
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