EBA欧洲银行-2013-10-01-Oliver-Wyman-Conference_9页_552kb

EU Banking Sector Repair Summary

Core Content

The document outlines the progress made in repairing the EU banking sector, with a focus on capital adequacy, balance sheet restructuring, and the challenges in restoring market confidence. It also highlights the importance of regulatory consistency, asset quality, and the role of the European Banking Authority (EBA) in addressing these issues.

Main Progress in Banking Sector Repair

• Capital Adequacy:

  • The Common Equity Tier 1 (CET1) ratio for the largest EU banks reached 11.9% in June 2013, compared to 11.1% for US banks.
  • Under Basel 3 standards (targeting 2019), the Core Tier 1 (CT1) ratio for EU banks was 8.4%, indicating a shortfall of about EUR 70 billion, which is manageable given the 2012 profits.
  • The leverage ratio for EU banks is approaching the regulatory benchmark, with a 10 bps shortfall from the 3% target at the end of 2012.
  • The average liquidity coverage ratio (LCR) for monitored EU banks was 109% in 2012, exceeding the 2019 target of 100% and the 2015 requirement of 60%.

• Balance Sheet Adjustments:

  • EU banks have primarily adjusted their balance sheets by reducing Risk Weighted Assets (RWAs) rather than increasing capital.
  • There has been a shift in assets and market shares across EU banks, with a decline in asset size since 2012.
  • A geographic shift has occurred, with a repatriation of assets back to home countries.
  • The EBA's recapitalisation exercise has led to capital increases, not reductions in RWAs, and the process is ongoing.

Market Confidence and Asset Quality

• Persistent Lack of Confidence:

  • Despite regulatory improvements, market confidence in EU banks remains low, as evidenced by price-to-book ratios.
  • Concerns exist about the adequacy of asset values, particularly in impairment recognition.

• Asset Quality Reviews (AQRs):

  • The EBA recommends EU-wide AQRs and the Balance Sheet Assessment (BSA) by the ECB to improve transparency and reassure investors.
  • There is a lack of comparability in asset quality across EU banks due to divergent definitions of Non-Performing Loans (NPLs).
  • The EBA is working to establish common definitions of NPLs and forbore loans to address this.

Regulatory Challenges and Recommendations

• RWAs Inconsistencies:

  • There are inconsistencies in methodologies for calculating RWAs, leading to perceptions of artificial capital boosting.
  • The EBA is addressing this through standardised disclosure, supervisory convergence, and benchmarking.

• Bail-in and Single Market:

  • The bail-in framework is essential to break the adverse loop between banks and sovereigns.
  • The fragmentation of the Single Market and the lack of coordination among national authorities have hindered the restructuring process.
  • The Single Supervisory Mechanism (SSM) is a step forward, but cooperation with non-participating states is still a concern.

Business Model Restructuring

• Significant Evolution:

  • Around 25% of EU banks' assets are under state aid regimes, with strict restructuring requirements.
  • Banks are restructuring business models, reducing loan-to-deposit ratios, exiting markets, and focusing on core activities.
  • However, market exit has been limited (less than 40 banks), compared to 500 in the US.

• RRPs and Resolution Framework:

  • The Recovery and Resolution Plans (RRPs) are seen as a key tool for driving change.
  • The EBA recommends 39 cross-border groups to complete their RRPs by year-end, followed by consistency checks.
  • A more integrated EU-wide approach is needed to ensure cooperation and avoid fragmentation.

Conduct of Business and Financial Stability

• Conduct Regulation:
  • Conduct issues are interlinked with prudential stability and must be addressed to ensure long-term resilience.
  • Examples include residential mortgages, payment protection insurance (PPI), and self-placement of financial instruments.
  • The EBA has issued good practices for responsible mortgage lending and is working on PPI issues to prevent similar problems in the EU.
  • Self-placement of financial instruments has led to consumer detriment, with products often sold as "as secure as deposits" without proper risk disclosure.

Key Takeaways

• The EU banking sector has made progress in capital and liquidity but still needs deleveraging and asset restructuring.
• Market confidence remains low, and asset quality is a key area for improvement.
• Regulatory consistency and harmonisation are critical for restoring trust in risk-weighted metrics.
• Conduct regulation is essential to ensure financial stability and consumer protection.
• The Single Market and cooperation among authorities are crucial for a cohesive and resilient banking sector.