Transcript Update: World Financial Crisis

Update: World Financial Crisis
and GDP projection 2009
Drs. A.G. Romero
Presentation CBS, KvK, and BNA
June 9, 2009
Length of recession in the U.S.
(Source: National Bureau of Economic Research)
70
60
In months
50
43
40
30
20
10
16
13
8
11 10
11
8 10
17
16
6
8
8
0
Au M Fe No Ju Au Ap De No Ja Ju Ju M De
g- ay- b- v- l-5 g- r-6 c- v- n-8 l-8 l-9 ar- c29 37 45 48 3 57 0 69 73 0 1 0 01 07
Returns, volatility, and length
of crises in months
Length of
crisis
(Months)
Returns
(%)
U.S.
Volatility
(%)
U.S.
Returns
(%)
U.K.
Volatility
(%)
U.K.
Returns
(%)
The
Neth.
Volatility
(%)
The Neth.
17+
-44.7
31.1
-29.8
26.1
-47.9
32.9
30
-44.7
24.3
-41.7
23.7
-57.3
32.9
2
-28.0
36.0
-28.2
39.8
-33.1
32.9
Oil crisis (1973)
11
-39.0
30.7
-61.1
61.6
-32.0
27.1
Second WW
(1939)
31
-30.2
40.6
-24.9
35.6
Great Depression
(1929)
34
-83.7
71.5
-43.3
22.4
First WW (1914)
4
-17.0
17.0
-9.4
13.2
Crisis (1873)
6
-17.2
19.8
3.4
6.6
American Civil
War (1862)
3
-19.5
36.0
-2.1
5.4
Credit crisis
(2008)
Dot.com (2000)
Black Monday
(1987)
Interagency Supervisory
Capital Assessment Program



“Stress testing” coordinated by the IMF for
the 19 largest banks in the U.S. (May 2009)
These 19 banks hold two third (2/3) of all
assets of the US banking system
Stress test focused on 3 major areas:
A. Capital adequacy
B. Effective liquidity management
C. Effective risk management
A. Capital Adequacy
Results stress tests IMF
All
1.
2.
3.
4.
5.
6.
7.
US banks need $75 billion
Bank of America:
Wells Fargo:
GMAC:
Citigroup:
Regional Financial:
Sun Trust:
Key Corp:
(May 2009)
33.9 billion
13.7 billion
11.5 billion
5.5 billion
2.5 billion
2.2 billion
1.8 billion
A. Capital Adequacy (cont’d)
Results stress tests IMF (May 2009)
8. Morgan Stanley:
9. Fifth Third:
10. PNC:
1.8 billion
1.1 billion
0.6 billion
11. American Express, 12. BB&T, 13. Bank of
New York Mellon, 14. Capital One, 15. Goldman
Sachs, 16. JP Morgan Chase, 17. Metlife, 18. State
Street, and 19. US Bancorp are sufficiently
capitalized.
B. Effective liquidity
management


Key question: Can the liquidity of the
banking sector fare under the stressed
market conditions?
Result: Daily monitoring of the liquidity
management of U.S. banks
C. Effective risk
management





Adequacy of risk management system;
Counterparty risk;
Credit risk (structured credit products and
mortgage lending on HIGH alert);
Monitor the link between risk-taking and
compensation; (bonus of top managers);
and
Effective internal communication of risks.
Lessons from George
Soros





Loan To Value ratio (LTV) is important;
Past experience: Outstanding loans as % GDP was
lower than today e.g., 150% in 1955, as opposed to
300% + today (HIGHLY LEVERAGED market);
Mortgage loans was limited to 80% of the value of
the properties (in 1950’s);
Loans linked to an investment portfolio was limited
to 50% (legal margin) of the value of the portfolio
(in 1950’s); and
Concentration risk: Government loans in many
countries is the multiplication factor of GDP (LatinAmerican banking crisis of the 1980’s)
Developments housing prices in
the Netherlands
Bankruptcies in the
Netherlands
Unemployed persons
in the Netherlands
(3 months average: 2001-2009)
Dutch security exchange
market (AEX-index)
Main developments Netherlands Antilles
(real % changes)
Domestic expenditure
Private sector
- Investment
- Consumption
Public sector
- Investment
- Consumption
Foreign net expenditure
- Export of goods & services
- Import of goods & services
GDP
2007
10.7
10.3
5.3
5.0
0.4
0.1
0.3
-7.9
0.6
8.4
3.8
2008
6.4
6.8
4.8
2.0
-0.4
-0.3
0.1
-3.8
5.7
9.5
2.0
Expected developments in 2009




Slower economic growth of 1.0% due to
fewer domestic activities caused by a
further slowdown of the world economy.
Lower inflation of 2.1% stemming from
decelerating global commodity prices.
Debt relief started in February 2009 (For
Curaçao: May 2009).
Lower surplus on the balance of payments
due to higher current account deficit
combined with lower external financing.
THANK YOU!