Regulation and changing dynamics in the banking sector. Annual meeting of Directors Institute of Finland 21 May, 2013

Transcription

1 Regulation and changing dynamics in the banking sector Annual meeting of Directors Institute of Finland 21 May, 2013

2 The financial crisis impacted Europe significantly GDP Index (End 1996 = 100) 160 Financial crisis Unemployment % 28% Trend growth 2.5% Lost growth EUR 2trn 26% 24% 22% 20% 18% 16% 14% % Lost Employment 7.75m jobs 10% 8% 6% % 2015 European GDP Growth European Unemployment Rate (RH) 2

3 The response from the regulators has been clear NEVER AGAIN 3

4 A flurry of regulations with a considerable combined impact CSD regulation MiFID II / MiFIR EMIR Short Selling Margin proposal for OTC's PRIPs Securities Law Directive Basel III / CRD IV Dodd-Frank Act LCR / NSFR Volcker rule CVA Financial Transaction Tax Living Wills DVA Trading Book Review Shadow Banking Recovery and Resolution Plans (G-SIBs) Liikanen (Vicker/Volcker) EU Banking Union Leverage ratio Recovery and Resolution for Financial Markets Infrastructure 4

5 Many different types of regulations Prudential regulations Capital, liquidity, funding, leverage, recovery and resolution Structural reforms e.g. Liikanen (Vickers, Volker), EU Banking Union Financial markets regulations Transparency, systemic risk, Investor protection Other e.g. Financial transaction tax, shadow banking 5

6 The new banking regulations implies stricter and increased requirements for all banks More Capital Core tier 1 from ~4% to 10-13% post-crisis Cost [+] and capacity [-] Liikanen report Ring fencing Capital requirements Cost [+], capability [-] and capacity [-] More liquidity (LCR) Additional liquidity buffers Stricter definitions Cost [+] Crisis management Recovery plans Resolution plans Bail-in Cost [+] and capacity [-] More LT funding (NSFR) Additional long term funding Cost [+] and capacity [-] Other regulations Cost [+], capability [-] and capacity [-] 6

7 The combined cost of the new regulation is substantial European banks; CoE = 11%; EUR billion ~ Profit needed to generate return on new/additional needed core tier 1 Cost of new funding regulation Cost of new liquidity regulation Total Already absorbed "core tier 1 costs" Total costs of new regulation EUR 115 billion corresponds to more than total net profits of the sector 7

8 What are the risks and costs for society of these new regulations? Impact study needed ~ 25* EUR TRILLION? Bank lending in Europe Cost for real economy * EU; total loans:

9 Local flavours and lack of global coordination create regulatory uncertainty and potential imbalances Level playing field? Balkanisation? Global European, Nordic, US 9

10 We need strong banks, able to serve customers and society in new environment Strong bank with lower funding and capital cost Safe and reliable customer oriented bank High capital generation More customers and increased income ROE above cost of capital Capital and cost efficiency 10

11 Banks are taking action to meet the new demands Focus on three key RoE levers Income Cost Capital Re-Pricing Staff reductions Balance sheet reduction Cross selling Efficiency programmes RWA optimization Non interest income Simplify product offering Re-pricing Reduce network Lending / tenor reduction Divestments Divestments 11

12 Bank dependency in Scandinavia and EU is significant Commercial bank loans to GDP 149% 118% 61% 73% Scandinavia EU USA Asia Source: The Banker; The IMF; The US Federal Reserve; Goldman Sachs Economic Research; 2009

13 Sources of financing for non-financial corporations Nordic US Other Banks Bank financing constitutes 85% of total financing in the Nordic area Bank financing constitutes less than half in the US The Nordics/EU will have to move closer to the US model Source: ECB and Dealogic 13

14 The future funding profile of corporates will change illustrative Historical funding profile Future funding profile Undrawn uncommitted facilities Undrawn committed facilities Undrawn uncommitted facilities Undrawn committed facilities Bank financing Term Loans Term Loans Other Bonds Commercial papers Capital markets financing Bonds Commercial papers 14

15 Thank you