Transcript PPT, 137 kB - Norges Bank

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

Crisis preparation/management in cross-border
setting
© National Bank of Belgium
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
© National Bank of Belgium
1. Large Banks in Small Countries

Concentration of banking sector:
Herfindahl
Index
Austria
Belgium
Denmark
Finland
Greece
Ireland
Luxembourg
Netherlands
Portugal
Sweden
557
2065
1114
2420
1130
562
315
1744
1044
760
Concentration
ratio 5 largest
banks
44
83
67
81
67
44
32
84
63
54
Herfindahl
Index
France
Germany
Italy
Spain
United Kingdom
597
173
240
521
347
Concentration
ratio 5 largest
banks
47
22
27
44
33
Source : ECB
Year 2003
© National Bank of Belgium
1. Large Banks in Small Countries

Size relative to the economy
Large banks in small countries
Large banks in large countries
GDP Belgium
Dexia
Fortis
KBC Groupe SA
295.5
441.9
535.5
284.9
GDP Netherlands
ABN Amro Holding NV
ING Bank NV
Rabobank Group
475.1
667.6
684.0
509.4
141%
144%
107%
GDP Sweden
Nordea Bank AB
252.3
331.1
131%
GDP Switzerland
Credit Suisse
UBS AG
230.5
777.8
1120.5
150%
181%
96%
338%
486%
GDP France
BNP Paribas
Crédit Agricole Group
Société Générale
1714.9
989.0
1105.4
681.2
58%
64%
40%
GDP Germany
Commerzbank
Deutsche Bank
Dresdner Bank
HypoVereinsbank
2178.2
481.9
1014.8
602.5
605.5
22%
47%
28%
28%
GDP United Kingdom
Barclays Bank
HBOS
HSBC Holdings
Royal Bank of Scotland
1726.6
791.3
650.7
1034.2
806.2
46%
38%
60%
47%
GDP United States*
Bank of America Corp
Citigroup
JP Morgan Chase & co
10429.0
736.4
1264.0
770.9
7%
12%
7%
Sources: OECD, The Banker
Gross domestic product Billion US dollars
Banks' Total Assets in Billion US dollars
Year : 2003
*2002
© National Bank of Belgium
1. Large Banks in Small Countries

Share of cross-border business (Eurozone)
Loans to nonresidents
Luxembourg
Ireland
Belgium
Finland
Netherlands
Austria
Portugal
Greece
80%
46%
41%
25%
23%
23%
22%
19%
Loans to nonresidents
France
Germany
Spain
Italy
19%
16%
12%
12%
Source ECB + own calculation
Year : 2000
© National Bank of Belgium
1. Large Banks in Small Countries

Do markets perceive large banks in small
countries as too big to save?
 evidence from Fitch Support Rating
Number of banks
Large
Small
countries
countries
Rating
Percentage
Large
Small
countries
countries
1
Extremely high probability of external support.
70
39
53.0%
57.4%
2
High probability of external support.
20
10
15.2%
14.7%
3
Moderate probability of support.
35
8
26.5%
11.8%
4
Limited probability of support.
1
9
0.8%
13.2%
5
External support, although possible, cannot be relied upon.
6
2
4.5%
2.9%
132
68
100.0%
100.0%
evidence from unsecured wholesale market
© National Bank of Belgium
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
© National Bank of Belgium
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
© National Bank of Belgium
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
© National Bank of Belgium
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
© National Bank of Belgium