The European Union has made significant progress to a more unified banking market but frictions remain between euro and non-euro countries. Without a coordinated approach to remaining issues in completing banking union, the gap could widen.
The ongoing recession will result in a fresh surge in non-performing loans (NPLs) once payment holidays and moratoria end later this year. NPL investors played a valuable role in tackling the stock of problem loans from the last crisis, but in the aftermath of the current recession more complex financial restructuring will be needed. Governments should facilitate the refinancing of distressed but viable companies, possibly through a special regime for SMEs.
Europe has a heavily bank-based financial structure, but bank-based financial structures are associated with higher systemic risk than market-based financial structures. The higher level of systemic risk in Europe suggests caution when pursuing policies that stimulate risk taking and debt creation by banks, especially in the wake of COVID-19. Priority should be given to financial diversification and equity finance.
The current pandemic is shaking the financial system. How can banks react ? Is a consolidation of the financial system in Europe needed in order to respond to this crisis ? Will our economies suffer from this pandemic as much as they did in 2008 ? This week, Giuseppe Porcaro is joined live by Guntram Wolff and Nicolas Véron to discuss banks and loan losses in the pandemic turmoil.
The banking system is critical to society and requires attention and support. In doing so, however, tough love is preferable to complacency.
This paper gives an overview of the seven aspects of resolvability defined in 2019 by the Single Resolution Board, and then assesses progress in two key areas, based on evidence gathered from public disclosures made by the 20 largest euro-area banks. The largest banks have made good progress in raising bail-in capital. Changes to banks’ legal and operational structures that will facilitate resolution will take more time. Greater transparency would make it easier to achieve the policy objective of making banks resolvable.
Eleven years since the start of Europe’s financial crisis, and the legacy of non-performing loans in the EU, though much smaller, is still a live issue for some member states.
The EU model of financial market regulation is increasingly copied by third countries. In this context, the EU’s efforts to promote its model beyond its borders should take into account the underdevelopment of financial markets in many partner countries, and the often insufficient capacity of regulators and supervisors.
Euro-area bank integration has decreased as post-financial crisis national rules require banks to hold more capital at home. It might be undermined further by bank resolution planning. Either a Single Resolution Board takes the lead for the entire banking group or independent local intervention schemes need to be developed for crisis resolution.
The performance of Chinese banks has been resilient so far, despite decelerating growth. While the performance of large banks remained steady, the rebound came from small banks. Why have small banks rebounded and is the rebound sustainable?
The head of German Finance has written in the Financial Times defending the need to deepen the banking union, now London is about to leave
The economy is in worse shape than in 2015 and policies to boost growth are not as effective as they once were