Transcript M. Singer

The CNB’s view
of the banking union
Introductory notes for panel discussion
Miroslav Singer
Governor, Czech National Bank
19th Dubrovnik Economic Conference
Dubrovnik, 13 June 2013
M.
Singer
The
Bankovní
CNB‘s
Developments
unie
view
očima
of
the
CNB
in
banking
the
Czech
union
Economy
Republic
and
and
Outlook
CNB
Forecast
M.
-––
Czech
Czech
Present
Republic:
Republic:
Conditions,
Staying
Future
Monetary
challenges
Ahead
of
the
and
and
Curve
opportunities
Outlook
with
Regard
in
Czech
toand
Republic
Monetary
Policy
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M.
Singer:
Financial
Crisis:
Likely
Impacts
on
the
CR
and
Lessons
for
the
Supervisors
M.
Singer
Singer
–
–Recent
The
Czech
Czech
Czech
economy
Republic:
economy
and
Can
and
development
record
crisis
in
low
Eurozone:
in
rates
Europe:
be
CNB
sustained?
Outlook
view
Challenges
M.Singer
M.
Singer:
Singer:
The
Present
Consumer
economic
Crisis:
Conditions,
and
protection
Impacts
financial
on
Monetary
crisis
the
inPolicy
CR
financial
from
and
the
Policy
Lessons
point
services:
and
of
for
view
the
Outlook
CNB
Supervisors
of
the
approach
Czech
for sector
CR
banks 1
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M.
Singer
–Financial
Macroeconomic
developments
developments,
in
monetary
the
CR
and
policy
GDP
and
growth
financial
comparisons
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Why is the banking union being created?
• Euro area is economically heterogeneous
(similarly heterogeneous as USA, maybe even more so)
• Consequently, it needs fiscal transfers on similar scale to USA
(but has no option of tax federalisation!)
• Yet transfers of this magnitude are unacceptable to voters in North
• Future of euro area depends on cutting links between banks and
public budgets
• BU is attempt define mechanisms that will allow fiscal transfers in
form acceptable to Northern countries (particularly Germany)
The Bulgarian lev, Swedish krona and Czech koruna
zones, for example, do not need the BU. They exist within
the borders of single nation states, which give them the
institutions they need to sustain their own currencies.
The point of the BU is to preserve the euro area!
M. Singer – The CNB‘s view of the banking union
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Core elements of the BU
according to the EC
1. Single Supervisory Mechanism (SSM) under ECB
2. Single European Resolution Mechanism (SRM), probably with
single resolution authority
3. Single European Deposit Guarantee Scheme (DGS)
4. Possibility of direct recapitalisation of banks from ESM funds
5. Single rules of regulation for banks – but it is the common
market, not the BU, that needs single rules!
The most important pillars of the BU have yet to
be created and their final form is still not known
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Single Supervisory Mechanism
• Creation of SSM will mean transfer of some micro- and macroprudential powers from national supervisory authorities to ECB
(some tasks will be delegated to national supervisors)
• All banks domiciled in euro area (around 6,000) will be subject to
ECB supervision; banks supported from EFSF/ESM;
140 “systemically important banks”, i.e. around 80% of bank assets in
EU, will be subject to direct ECB supervision
• Direct ECB supervision will take about 1 year to get up and running
• ECB Supervisory Board chairman will be proposed by ECB;
candidate will have to be approved by European Parliament and
decided by EU Member States (Ecofin)
Putting the ECB in charge of banking supervision is
giving rise to many demands and will lead to the
ceding of the bulk of powers to the European level
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Predicted/expected benefits of the
SSM for participating countries
• Breaking of vicious circle between bank solvency and sovereign
debt (in countries where banks operate) through direct
recapitalisation of banks from ESM – this assistance is conditional
on establishment and effective operation of SSM
• Unified and cross-border supervision of credit institutions
• Enhanced supervision of financial sector for some states of euro
area (southern periphery) and overall reduction in number of
interventions to support banks in euro area
The establishment of the SSM may contribute to
increasing the effectiveness of banking supervision
in the euro area
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Risks and uncertainties for
participating countries
• Two main uncertainties:
 Who will pay for recapitalisation of euro area banking sector?
 Will SSM be good enough even with better capital buffers?
• Moral hazard – expectation that EU will (“this time”) cover costs
of bank failures
• Weaker pressure for structural reform of economies
• Weaker pressure for reform of banking sectors that currently have
too many banks of questionable viability
• Loss of powers and responsibilities of national supervisory and
resolution authorities for financial stability and market functioning
Even this mechanism is likely to become unacceptable
to Northern constituencies if transfers through
quasi-fiscal channels of the BU become too frequent
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Stance of the CNB
• We support mechanisms leading to stabilisation of euro area
• However, Czech koruna does not need BU
• Euro area must primarily help itself; resources of all EU Member
States put together are not enough to stabilise it
• Czech financial sector is highly specific in EU in being liquid and
well capitalised; despite being based on host principle it is net creditor
of euro area financial sector
Therefore:
• We support the creation of the BU in the euro area
• We want to eliminate the risk of institutions from our
financial sector being drawn into the euro area crisis
• We want to retain the current balance of powers in the
EBA and other institutions between euro area and noneuro area countries and home and host institutions
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Broad position of the Czech Republic:
What have we pushed through?
• Final word of national authorities in decisions on fund sharing
within cross-border groups and deposit insurance schemes
 currently open question
• Final word of national authority on conversion of subsidiary of
foreign bank in non-BU state into branch  recital in SSM text
(in CNB’s opinion may not give sufficient guarantees)
• Revision of EBA voting rules to prevent systematic outvoting of
non-participating states  OK
• Limitation of ECB’s financial stability mandate to participating
states only  hopeful
The Czech Republic has succeeded only in pushing
through a satisfactory revision of voting in the EBA
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Banking union: summary
• CNB will continue to try to:
 assist in creation of BU
 eliminate risks associated with other proposed elements of BU
(with due regard to specifics of Czech banking sector)
 retain symmetry between supervisory powers and responsibility
for financial sector stability in Czech Republic
• If Czech Republic (as non-euro country) were to join SSM:
 it would cede banking supervisory powers
 it would not be able to vote in key ECB decision-making body
(Governing Council), only in Supervisory Board
 it would not be entitled to assistance from ESM, which is only for
euro area member countries
• CNB believes that country that will not be BU member should not
contribute to BU’s operating costs and to risk sharing
The CNB does not currently see any reason for the
Czech Republic to join the banking union
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Thank you
Miroslav Singer
[email protected]
Tel: +421 224 412 000
Česká národní banka
Na Příkopě 28
115 03 Praha 1
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