From Fragmentation to Financial Integration in Europe
Back Matter

Back Matter

Author(s):
Charles Enoch, Luc Everaert, Thierry Tressel, and Jianping Zhou
Published Date:
December 2013
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Contributors

Nikita Aggarwal is a consulting counsel in the IMF’s Legal Department, advising primarily on legal frameworks for financial sector supervision, crisis resolution, and sovereign debt management. Prior to joining the IMF, Ms. Aggarwal worked as a lawyer in the London, Singapore, and Beijing offices of Clifford Chance LLP, specializing in EU financial regulation and sovereign debt restructuring. Ms. Aggarwal holds an LLB from the London School of Economics and Political Science, and is a qualified solicitor of England and Wales.

Wouter Bossu is deputy to the assistant general counsel of the Financial and Fiscal Law Unit of the IMF’s Legal Department, providing advice on legal frameworks for financial systems of advanced, emerging market, and developing countries. Previously, he was the head of the financial law unit in the National Bank of Belgium and also worked at the European Central Bank. He was educated in law and business administration at Leuven University.

Ana Fiorella Carvajal is a senior financial sector expert in the IMF’s Monetary and Capital Markets Department, where she focuses on regulation and supervision of securities markets and shadow banking. She has conducted assessments of the regulatory framework for securities markets in both industrialized and emerging market jurisdictions, and provided technical advice to a wide range of emerging market countries. Ms. Carvajal holds a law degree and a master’s degree in public administration.

Jorge Chan-Lau is a senior fellow at the Fletcher School, Tufts University, a senior economist at the IMF, and the author of the comprehensive how-to manual, Systemic Risk Assessment and Oversight (Risk Books, 2013). At the IMF, he leads analytical and policy work on stress testing and systemic risk and has been a regular contributor to the IMF’s Global Financial Stability Report. His published research work covers capital markets, risk analysis, financial regulation, macroprudential policy, and asset allocation. He has also served as an advisor on systemic risk to the central banks of Canada, Chile, and Malaysia, and managed a pilot frontier markets local currency portfolio at the International Finance Corporation in 2007-08. He has PhD and MPhil degrees from the Graduate School of Business, Columbia University, and a BS in Civil Engineering from Pontificia Universidad Católica del Perú.

Marc Dobler is a senior financial sector expert in the IMF’s Monetary and Capital Markets Department.

Charles Enoch is a deputy director of the Monetary and Capital Markets Department of the IMF. In 2012, he led the IMF’s first Financial Sector Assessment Program exercise for the European Union. He has contributed to a number of published volumes and edited several books, including Rapid Credit Growth in Central and Eastern Europe: Endless Boom or Early Warning? (Palgrave Macmillan, 2007). He led teams conducting the IMF’s financial sector work during the Asian and Central/East European crises. He holds a PhD from Princeton University and an MA from Cambridge University.

Luc Everaert is an assistant director in the Monetary and Capital Markets Department of the IMF, focusing on sovereign risk, sovereign asset and liability management, nonbank financial intermediation, and financial stability. Previously he worked at the IMF on the euro area. He holds a PhD in International Economics from the Graduate Institute of International Studies in Geneva.

Dale Gray is a senior risk expert in the Financial Sector Assessments and Policies Division of the Monetary and Capital Markets Department of the IMF. He has developed risk and finance tools for balance sheet risk analysis in economies and linkage to macroeconomic models. He is coauthor of the book Macrofinancial Risk Analysis (Wiley, 2008), and has published forty-four papers and articles. He regularly teaches and gives presentations to central banks and at risk conferences. He previously worked on Wall Street, at the World Bank, and as advisor to various governments. He has developed macro-financial risk and valuation models for systemic risk, sovereign bank risk, network models, and integrating the financial sector into dynamic stochastic general equilibrium/macro models. He has a PhD from the Massachusetts Institute of Technology, a master’s degree from Stanford University, and is a Certified Financial Risk Manager.

Alessandro Gullo is a counsel for the IMF’s Legal Department, advising on supervision and resolution regimes of financial institutions, crisis management, and public financial management. Prior to joining the IMF in 2008, Mr. Gullo worked for international law firms. He Gullo received an LLM with distinction in International Legal Studies from Georgetown University and a law degree from the University of Rome “La Sapienza.” He is admitted to the bar in New York and Italy.

Daniel C. Hardy is an advisor at the IMF. In the course of his career, he has worked on a wide range of industrialized, emerging market, and developing countries. He has contributed to macroeconomic surveillance, financial sector surveillance, and, in particular, Financial Sector Assessment Programs, as well as the design and implementation of IMF-supported programs, policy development, and technical assistance. His recent research has centered on bank behavior, stability analysis, and political economy issues.

Heiko Hesse is an economist in the Monetary and Capital Markets Department at the IMF, where he works on financial crisis issues and most recently on the European Union financial sector assessment. Before that he worked on the Turkish financial sector. He also covers the banking sector in the Romania program. Previous IMF assignments include a number of Middle East countries, and he has been a contributor to the Global Financial Stability Report. Prior to joining the IMF, he worked for the World Bank, on the Commission on Growth and Development. He holds a PhD in Economics from the University of Oxford and was a Visiting Scholar at Yale.

Barend Jansen is assistant general counsel in the Legal Department of the IMF, where he heads the Financial and Fiscal Law Unit. Prior to the IMF he worked for eighteen years at the central bank of the Netherlands, where he was involved in the preparation of the third stage of the European Monetary Union. At the IMF Mr. Jansen’s expertise spans financial sector law reform and policy issues in the areas of central banking, banking, bank restructuring and resolution, and nontax fiscal matters.

Nadege Jassaud is a senior economist in the Monetary and Capital Markets Department (Financial Crisis Division) at the IMF. She was recently involved in the bank restructuring of the Greek program, as part of the Troika in 2011-12. She has also coauthored an IMF Staff Discussion Note on bail-in and contributed to an IMF board paper on macroprudential policies. Prior to the IMF, she was deputy head of the Financial Stability Division at Bank of France. Nadege obtained a master’s degree in political finance from Sciences Po Paris, and in financial markets from Universite de Louvain La Neuve. She is a lecturer in finance at the University Paris Dauphine.

Luc Laeven is deputy division chief in the IMF’s Research Department and Chaired Professor of Finance at Tilburg University. Prior to this, he was a senior economist at the World Bank. His research focuses on banking and international finance issues, and has been published in top academic journals, including the American Economic Review, Journal of Finance, Journal of Financial Economics, and Review of Financial Studies. He is the coauthor of Completing the Eurozone Rescue: What More Needs to Be Done? (voxEU.org, 2010), and coeditor of Systemic Financial Crises: Containment and Resolution (Cambridge University Press, 2012), Deposit Insurance around the World: Issues of Design and Implementation (MIT Press, 2008), and A Reader in International Corporate Finance (World Bank, 2006). He is a Research Fellow at the Centre for Economic Policy Research (CEPR) in London and a Research Associate at the European Corporate Governance Institute (ECGI). He studied economics and finance at Tilburg University, the University of Amsterdam, and the London School of Economics.

Fabiana Melo is a senior financial expert in the Financial Regulation and Supervision Division of the IMF’s Monetary and Capital Markets Department. Since joining the IMF in 2009, she has been involved in Basel III/G20-related policy work, including the revision of the Core Principles for Effective Supervision, as well as several Financial Sector Assessment Programs and surveillance. Before joining the IMF, she worked at the Banco Central do Brasil, where she was involved in the development of prudential regulation and implementation of international regulatory standards, in particular, the Basel Core Principles for Effective Banking Supervision, and regulatory convergence within Mercosur. She was responsible for the Basel II implementation project in Brazil until 2009, and participated in several international working groups with the Basel Committee, including the Core Principles Liaison Group and the Capital Working Group. Mrs. Melo studied international relations and has an MSc in Economics from the University of Brasilia.

Michael Moore is the deputy division chief of the Financial Sector Oversight Division, which is part of the Monetary and Capital Markets Department at the IMF. His primary responsibilities in this role are to develop IMF policy and operational positions on financial sector supervision and regulation. Prior to this he held the position of deputy division chief of the Financial Market Integrity Division, where he was responsible for the development of the IMF’s policy and operation positions for financial integrity. Prior to joining the IMF, Mr. Moore worked as a senior analyst and bank supervisor for the U.S. Federal Reserve.

Marta Rodríguez-Vives is currently a senior economist in the Fiscal Policies Division at the European Central Bank. Her research interests include government debt and fiscal sustainability risks, the balance-sheet approach to the correction of macroeconomic imbalances, and the linkages between the government sector and the financial system. She holds a PhD in Business Administration and a Postgraduate Diploma in Economic Policy.

Scott Roger joined the IMF in 1998, working in the Asia and Pacific Department and then the Monetary and Capital Markets Department. There he focused primarily on monetary policy issues, including inflation targeting and macro-prudential policies, drawing on his previous experience as a central banker at both the Bank of Canada and the Reserve Bank of New Zealand. More recently, Mr. Roger served at the IMF European Office, liaising with the Organization for Economic Co-operation and Development and the Bank for International Settlements. He is now serving as the coordinator of the IMF’s Pacific Financial Technical Assistance Centre in Suva, Fiji.

Virginia Rutledge was formerly a senior counsel in the IMF’s Legal Department.

Nolvia N. Saca-Saca is currently a senior economist in the Monetary and Capital Market Department of the IMF, where she works on the area of crisis management and bank resolution. She participated in a secondment program to Pacific Investment Management Company, where she worked on economic analysis and research on emerging market countries. Prior to joining the IMF, she held a variety of positions in public and academic institutions in El Salvador, including eight years as economic advisor of the Central Bank of El Salvador. She holds a PhD in Economics from the University of Kiel, a Postgraduate Diploma in International Economics from the Graduate Institute for International Studies in Geneva, and an Advanced Studies Certificate in Economic Policy Research from the Kiel Institute of World Economics.

Thierry Tressel is a senior economist in the European Department of the IMF, covering euro area and European Union policies. Previously he worked in the Research and Asian Departments of the IMF on macroeconomic issues, development and finance, and on emerging markets. He joined the IMF in 2002, and previously worked at the Organization for Economic Co-operation and Development and the World Bank. He has published in books and academic journals, including the Journal of Finance, Journal of International Economics, Journal of Financial Intermediation, Journal of Economic Growth, Journal of the European Economic Association, and volumes by the National Bureau of Economic Research. He holds a PhD in Economics from the Ecole des Hautes Etudes en Sciences Sociales and an engineering degree from the Ecole Polytechnique in Paris.

Rodolfo Wehrhahn is a senior financial sector expert in the IMF’s Monetary and Capital Markets Department, currently responsible for advice on insurance and pensions. He was formerly a senior insurance specialist at the World Bank. Since 2008, working at the World Bank and the IMF, he has provided advice on and evaluated the performance of the supervision and regulation of insurance and pensions in advanced and developing economies, including the United Kingdom, Spain, the European Union, Japan, Italy, Mexico, Brazil, Israel, Russia, Mozambique, Nigeria, and Indonesia. He has carried out full assessments of the International Association of Insurance Supervisors principles, and appraised the stability of the insurance and pension sectors, and also worked in multiple technical assistance projects globally in insurance and pension supervision, development, and Microinsurance. He has also worked in the private sector and as a lecturer and researcher in mathematics and physics at the University of Hamburg. He holds PhD and master’s degrees in mathematics, as well as a master’s degree in physics from the University of Hamburg, Germany.

Froukelien Wendt is a senior financial sector expert at the IMF, with a specialization in financial market infrastructures. She is responsible for policy development and has participated in various Financial Sector Assessment Programs, with a focus on central counterparties and central securities depositories. She also participated actively in the development of the new international principles for financial market infrastructures. Before joining the IMF she worked at the World Bank, De Nederlandsche Bank, and NYSE Euronext.

Jianping Zhou is a Senior Economist in the IMF’s Monetary and Capital Markets Department, focusing on financial sector assessment in the European countries. Previously she worked with the IMF’s European and Asian Departments, covering euro area and emerging economies, including China and Korea. She has published on macroeconomic adjustment, policies for too-big-to-fail institutions, and crisis management and resolution in Europe. She holds a BS in mathematics from Zhejiang University and a PhD in economic from Georgetown University.

Index

Note: Boxes are denoted by b; figures by f; notes by n; and tables by t.

A

Accountability

  • European Stability Mechanism and, 268, 276

  • for European Supervisory Authorities, 297–300

  • for monetary policy, 293–296

  • for single resolution mechanism, 245

  • for single supervisory mechanism, 210, 228, 296–297

Advanced EU countries, macroprudential instruments in, 383–384b

Advisory Scientific Committee (ASC), 376 reports, 377–378, 380

AIG, 131n, 250, 259, 270, 470

Alternative Investment Fund Managers Directive, 23

AMCs. See Asset management companies (AMCs)

AQRs. See Asset quality reviews (AQRs)

ASC. See Advisory Scientific Committee (ASC), of European Systemic Risk Board

Asset management companies (AMCs), 129–132, 238

  • advantages/disadvantages of, 270–271

  • challenges and key design features of, 132t

  • competition policies and, 272–273

  • European stability mechanism and, 187, 264, 266–267, 276

  • funding of, 131–132, 273

  • Irish, 270b

  • key considerations for, 272b

  • lessons from, 271

  • role of European Central Bank in, 273–275

  • Spanish, 270b

  • work-out of impaired assets and, 270–273

Asset protection schemes, 104, 105t

Asset Purchase Facility, 103

Asset quality reviews (AQRs), 25b, 112–114, 127–129, 130t, 229–230, 322–324, 332

Assets

  • banking group, 124, 124f

  • legacy, 186–187, 269–270

  • risk-weighted, 327, 386f

  • work-out of impaired, 269–273

Asset valuation, European stability mechanism and, 186

Austria

  • banking system in, 56

  • deposit guarantee schemes in, 279

  • foreclosure process in, 420

  • risk indicators, GDP growth, and credit growth in, 87f

B

Backstops. See Fiscal backstops

BaFin, 235b

Bail-ins, 7, 16, 104, 230, 240–241, 248, 258, 433–456

  • comparison with other resolution tools, 449–450

  • cross-border challenges, 445–449

  • defined, 433, 437–438

  • European Stability Mechanism and, 268

  • framework for, 441–445

  • group issues, 445–449

  • overview, 434–436

  • potential market risks and mitigating measures, 450–453

  • statutory, 437–440

  • trigger for, 434

  • in UK, 234

Bailout-related public sector expenditures, 6–7

  • minimizing, 469–470

Balance sheets, 4. See also Contingent Claims Analysis (CCA)

  • effect of bail-in on bank, 437–438, 438t

  • insurance industry, 354–356

  • repair of, 17

  • restructuring, 267

Bank assets, distribution of, 58, 59f, 61f

Bank coverage

  • of single resolution mechanism, 246–247

  • of single supervisory mechanism, 216

Bank failures, 134

  • deposit guarantee schemes and, 288

Bank for International Settlements (BIS), 59n, 109n, 148, 361

Banking Act of 2009 (United Kingdom), 234, 440

Banking and deposit guarantees, 22

Banking assets, distribution by bank size, 56t

Banking groups

  • assets of, 124, 124f

  • bail-ins and, 448

Banking integration, economic volatility and, 62–64, 63b

Banking regulatory authorities, 305–308. See also European Banking Authority (EBA)

  • cross-sectoral issues, 315–316, 317

Banking sector, 301–302

  • high leverage of, 133

  • integration of, 42b

  • preconditions for sound, 179

  • regulatory framework for, 302–309

  • restructuring, 16, 105

  • shadow, 435

  • supervisory agencies for, 24–25, 212–213

Banking Stakeholder Group, 306

Banking supervision. See also Single supervisory mechanism (SSM)

  • in U.S. and Canada, 212–213

Banking union, 8, 169–192

  • BRRD and, 236

  • common safety nets, 184, 190

  • country coverage of, 178

  • deposit guarantee schemes and, 282, 288

  • design of, 177–178

  • design of single resolution mechanism, 181–184

  • design of single supervisory mechanism, 178–181

  • DG-COMP and, 29

  • EC blueprint for, 241

  • effects of, 172–173

  • elements of, 194–195

  • European stability mechanism direct recapitalization, 185–187

  • European Systemic Risk Board and, 389–390

  • financial integration and, 163

  • implementation and risk mitigation and, 18–21

  • institutional coverage of, 178

  • judging effectiveness of European Central Bank, 188–190

  • legal basis of, 21, 189, 193–204

  • non-euro area EU member states and, 191–192

  • oversight and supervision and, 114

  • progress toward, 4, 17, 172t

  • proposal for, 171–172, 174–177

  • risks in transition to, 223–227

  • role of, 169–170

  • sequencing, 188

  • shared competencies and responsibilities, 189

  • single resolution mechanism and, 233

  • sovereign debt crisis prevention and, 173–174

  • transition to, 187–188

  • transparency and accountability in, 296–297

Bank Insurance Fund (U.S.), 286

Bank levy, 235b

Bank liability structure, bail-ins and, 452–453

Bank of England, 297

  • Financial Stability Report, 133

  • response to financial crisis, 103

  • Single Point of Entry approach agreement, 463–464, 474

  • supervisory policy at, 294

Bank of New York Mellon, 395

Bank recapitalization. See Recapitalization

Bank Recovery and Resolution Directive (BRRD), 4, 171–172, 172t, 175, 211, 212, 227, 314

  • Article 114 and, 199, 201

  • banking union and, 236

  • deposit guarantee schemes and, 281–282

  • establishment of, 193

  • European Stability Mechanism and, 263

  • international standards and, 236–238

  • risks and areas for enhancement, 237b

Bank Reorganization Act (Germany), 127, 234, 235b, 236

Bank resolution. See also Bail-ins; Single resolution mechanism (SRM)

  • in European Union, 234–238

  • preconditions for, 182

  • tools, 46

Bank resolution and restructuring in the European Union, 123–137

  • asset management companies, 129–132

  • asset quality and asset quality reviews, 127–129

  • direct support, recapitalization and resolution, 124–127

  • extent of, 133–135

  • future of, 135–136

Bank runs, 451

Bankruptcy/insolvency law reform, 238

Banks. See also Financial institutions

  • assets of four largest banks/GBP, 10f

  • bail-ins and funding costs, 451–452

  • buffers, 110f

  • classification of, 219–220

  • core Tier 1 ratios, 110f

  • credit default swaps, 14f

  • cross-border expansion of, 57–58

  • debate on size and activities of, 164

  • deleveraging, 14f, 16, 109

  • under direct ECB supervision, 225

  • downsizing, 468–469

  • dual nature of, 460–461

  • effects of sovereign risk on, 113–114

  • European Stability Mechanism ownership of, 265–266

  • financial integration and, 2

  • funding for, 134

  • funding pressure and, 107–109, 141, 143f

  • market shares of foreign, 11f

  • overbanking, 49, 55

  • recapitalization exercise, 114–115

  • relation to sovereigns, 109

  • ring-fencing of domestic, 22

  • risk mitigation policies, 86t

  • role in financial crisis, 6

  • separating investment from commercial, 7, 31, 460–464

  • under supervision, 180f

  • systemically important, 226, 434–435, 439

  • too-big-to-fail, 253

Bank-sovereign stress, 155f

Barnier, Michel, 461

Basel Committee on Banking Supervision (BCBS), 207, 213, 302–304, 382

Basel Concordat, 44

Basel Core Principles, 18, 179, 188, 213

Basel II, stress testing and, 321

Basel III, 171

  • capital adequacy and liquidity and, 302–303

  • capital and liquidity buffers and, 114

  • capital directives and regulations and, 17, 115, 467

  • countercyclical capital buffer and, 382

  • deleveraging and, 146

  • discrepancies in, 303–304

  • own-funds disclosure and, 313

  • stress testing and, 328, 333

BCBS. See Basel Committee on Banking Supervision (BCBS)

Bear Sterns, 98, 131n, 259, 270

Belgium

  • asset management companies in, 131

  • national securities depository of, 34

  • risk indicators, GDP growth, and credit growth in, 87f

  • shock scenario analysis, 83, 84

BIS. See Bank for International Settlements (BIS)

BMF, 235b

BNP Paribas, 97, 134, 182b

Board of Supervisors

  • European Securities and Markets Authority, 337, 345–346, 347

  • European supervisory authorities, 298–299

Bond markets, 108f

  • depth of, 56f

  • fragmentation in, 52

  • integration of, 51, 52f

  • role in financing economy, 49

Bond spreads, 63, 64f

Borrower restructuring, legal hurdles to, 238

Brady Plan, 465

Breach of laws procedure, European Securities and Market Authority and, 343

Bridge-bank powers, 449

Bridge banks, 248

BRRD. See Bank Recovery and Resolution Directive (BRRD)

Budapest Protocol, 363

Budget

  • European Banking Authority, 308

  • European Insurance and Occupational Pensions Authority, 359–360

  • European Securities and Market Authority, 339–340

Burden sharing

  • with creditors, 16, 105

  • European Stability Mechanism and, 265

  • single resolution mechanism and, 249, 252–253, 257–260

C

Canada, banking supervision in, 212–213

Capital adequacy

  • and liquidity, Basel III and, 302–303

  • ratios, boosting, 3

  • ratios aggregate, 13–14

  • ratios relation to EDF, FVCDS and expected loss ratio, 75b

  • in Sweden, 386f

Capital buffers, 113, 114, 133, 467

Capital flows

  • reversals of, 140–141, 142f

  • stabilization of, 152

Capital market integration, 42b

Capital markets, 415t

Capital Requirements Directive (CRD), 303, 382, 405

Capital Requirements Directive II (CRD II), 303

Capital Requirements Directive IV (CRD IV), 5, 115, 302, 467

  • capital requirements under, 165

  • as macroprudential instrument, 164, 211, 372, 390

  • stress testing and, 320, 325, 328, 332, 333

Capital Requirements Directive IV/Capital Requirements Regulation (CRD IV/CCR), 17, 18, 171, 172t, 222–223, 227, 303–304, 389, 391

  • banking union success and, 188

Capital requirements for banks, 459

Capital Requirements Regulation (CRR), 164, 165, 211, 302, 303–304, 309, 372

Capital-to-asset ratio, 9f, 108f, 133, 133f

Cash-flow-based liquidity stress testing, 330–331

Cash markets

  • clearing, 396

  • main central clearing counterparties, 407

CCA. See Contingent Claims Analysis (CCA)

CCB. See Countercyclical capital buffer (CCB)

CC&G, 407

CCMA, 427

CCP Austria, 407

CCPs. See Central clearing counterparties (CCPs)

CDOs. See Collaterized debt obligations (CDOs)

CDS. See under Credit default swap (CDS)

CEBS. See Committee of European Banking Supervisors (CEBS)

Central Bank of Ireland, 236

Central banks

  • central clearing counterparties and central securities depositories and, 401

  • funding of asset management companies, 274b

  • liquidity in foreign currency and, 114

Central clearing counterparties (CCPs), 5, 32–33, 35, 393

  • cooperation among authorities, 402–405

  • crisis management and, 405–406

  • effectiveness of supervision and oversight of, 398–402

  • in the European Union, 394–398

  • main cash market, 407

  • reforms, 397–398

Central resolution authority, 248–249

Central securities depositories (CSDs), 5, 32–33, 393

  • cooperation among authorities, 402–405

  • crisis management and, 405–406

  • effectiveness of supervision and oversight of, 398–402

  • in the EU, 394–398, 407, 407t

  • international, 394–395

  • reforms for, 397–398

CfDs. See Contracts for Differences (CfDs)

Chapter 11 Bankruptcy, 439

CIT. See Commercial Investment Trust (CIT) Group

Clearnet Group, 394

Clearnet Limited, 395

Clearstream, 407

Clearstream Banking Luxembourg, 34, 394

CLS. See Council of Legal Service (CLS)

Code of Conduct for Clearing and Settlement, 395

Code of Conduct on Mortgage Arrears, 423

“Code of Good Practices on Transparency in Monetary and Financial Policies” (IMF), 293

Collateralized lending markets, 387

Collaterized debt obligations (CDOs), 97

Commercial banking

  • CDS premiums and, 53f

  • separating from investment banking, 460–464

Commercial Investment Trust (CIT) Group, 438–439

Committee for Economics and Market Analysis, 347

Committee of European Banking Supervisors (CEBS), 43, 47, 101

  • recapitalization and, 126

  • stress testing and, 113, 114, 319, 320

Committee of European Insurance and Occupational Pensions Supervisors, 43, 47, 356, 363

Committee of European Securities Regulators, 43, 47, 338, 341, 342

Committee on Payment and Settlement Systems-International Organization of Securities Commissions (CPSS-IOSCO), 399

Common Regulatory Framework for Internationally Active Insurance Groups (ComFrame), 357, 369

Common Reporting (COREP), 312, 313

Competition policies, asset management companies and EU, 272–273

Complaints-Handling by Insurance Undertakings, 364

Connectedness, degrees of. See Contingent Claims Analysis (CCA)

Consumer protection

  • European Banking Authority and, 314–315, 317

  • European Insurance and Occupational Pensions Authority and, 26, 364–365

Contagion risks, 435

  • bail-ins and, 453

Contingent Claims Analysis (CCA), 69–96

  • for financial institutions and sovereigns, 71–74, 77t

  • interactions between financial institutions and sovereigns, 70–71

  • overview, 69–70

  • shock scenario analysis, 81–85

Contingent Claims Analysis (CCA) global vector autoregression (GVAR), 70, 80, 85, 87–94f

Contingent Claims Analysis (CCA)-network models, 76–80, 79f

Contracts for Differences (CfDs), 315

Contractual contingent capital instruments, 437

CoreLogic database, 409

COREP. See Common Reporting (COREP)

Core Principles for Effective Banking Supervision, 207, 213

Core Tier 1 capital buffers, 133

Core Tier 1 ratios, 110f

Corporations, lack of borrowing by, 159–162, 159f, 161t

Cost of resolution, 469–470

Council of Legal Service (CLS), 175–176, 243

Council of the EU, 39, 41, 41n

Countercyclical capital buffer (CCB), 382, 387

Country coverage, of banking union, 178

Coverage levels of deposit guarantee schemes, 280–282, 283–284, 285–286, 287–288, 292t

Covered bond laws, 452–453

CPSS-IOSCO. See Committee on Payment and Settlement Systems-International Organization of Securities Commissions (CPSS-IOSCO)

CRA3, 336, 341

CRAs (credit rating agencies). See Credit rating agencies (CRAs)

CRD. See under Capital Requirements Directive (CRD)

Credit crunch, SMEs and, 156–159, 157f, 158f, 159f

Credit default swap (CDS), 52, 53f

  • for banks in EU countries, 76t

  • correlations of sovereign and bank, 14f

  • for European insurers, 357f

  • government backing for banks and, 73

  • insurance market capitalization in, 15f

  • sovereign, 76

Credit default swap (CDS) spreads, 152–153, 153t

  • five-year bank, 111f

  • sovereign, 63, 65b

Credit demand

  • corporations and households, 159–162, 159f, 161t, 162t

  • SMEs, 156–159, 157f, 158f, 159f

Credit indicators

  • EU, 87–94f

  • U.S., 94f

Credit institutions

  • funding, 376

  • number of, 56–57, 57f

Creditor claims, hierarchy of, 183

Creditors. See also Deposit guarantee schemes (DGS)

  • burden sharing with, 16, 105

  • improving legal position of, 471

  • junior, 258

Credit rating agencies (CRAs)

  • Risk Assessment Framework, 345

  • supervision of (see European Securities and Markets Authority (ESMA))

Crisis management, 97–106. See also Bail-ins

  • central clearing counterparties and central securities depositories and, 405–406, 405b

  • crossing borders, 98–102

  • European Insurance and Occupational Pensions Authority and, 361

  • European Securities and Market Authority and, 335–336, 337, 348–349

  • European Systemic Risk Board role in, 380

  • global financial crisis and, 97–98

  • lack of consistent, 46

  • policy decisions for, 102–106

  • stress testing and, 319

Crisis Management Groups, 314

Cross-border banks, overseas activities funded in U.S. dollars, 147, 148f

Cross-border challenges, bail-ins and, 445–449

Cross-border credit, 60

Cross-border deleveraging, 145f, 148–153, 150t

Cross-border equity markets, 146

Cross-border exposures, 2

  • financial crisis and, 98–102

  • reduction of, 140

Cross-border harmonization, of macroprudential frameworks, 388–389

Cross-border holdings of financial assets, 67–68f

Cross-border leveraging, 145f, 148–153, 150t

Cross-sectoral arrangements, European Securities and Market Authority and, 349–350

Cross-sectoral issues, European Banking Authority and, 315–316, 317

CRR. See Capital Requirements Regulation (CRR)

CSDs. See Central securities depositories (CSDs)

Cyprus

  • asset management companies in, 131

  • asset quality review in, 129, 130t

  • bank resolution in, 471n

  • debt-to-GDP ratio in, 413

  • as financial center, 60, 474

  • financial crisis and, 98

  • foreclosure process in, 421, 422t

  • home ownership rate in, 411–412

  • housing market policies, 415t

  • nonperforming loans as percentage of gross loans in, 430t

  • unemployment rates in, 430t

Czech Republic

  • risks and vulnerabilities identified by recent FSAPs in, 120–121t

  • TARGET2-Securities and, 398

D

Danaharta, 131n, 270, 271

Data exchange, European Systemic Risk Board, 375

Data issues, European Banking Authority, 307

Data management, European Central Bank supervision and, 227

Debt Arrangements for Over-Indebted Individuals and Other Rules, 420

Debt conversion, 434

Debtor liability, 419–420

Debt ratio targets, 466

Debt restructuring, 434

Debt-to-GDP ratio, 413, 413f

Debt-to-income ratios (DTI), 382, 387, 390

Default rates, 417, 417t

De Larosiere High Level Group, 207

De Larosiere Report, 7, 44, 46, 47, 373

Deleveraging, 16, 109

  • by euro area banks, 14f

  • during financial crisis, 140–148, 145f, 147f

Deleveraging/restructuring plans, 125f

Delors Committee, 42–43

Denmark, 472

  • asset management companies in, 131

  • corrections in housing prices in, 416

  • foreclosure process in, 420, 422t

  • housing market policies, 415t

  • nonperforming loans as percentage of gross loans in, 430t

  • repossessions in, 417

  • residential-mortgage-debt-to-GDP ratio in, 413

  • risk indicators, GDP growth, and credit growth in, 88f

  • unemployment rates in, 430t

Deposit guarantee schemes (DGS), 4, 16, 22, 171, 172t, 190, 279–292

  • characteristics of EU (2012), 290t

  • coverage, 280–282, 283–284, 285–286, 287–288, 292t

  • existing arrangements, 279, 280f, 290t, 291t, 292t

  • funding for, 279, 281, 284–285, 287

  • harmonization of, 280–282, 287

  • harmonized national resolution funds and, 260–261

  • insured deposits and DGS fund size to GDP, 280f

  • limiting moral hazard, 285–287

  • mandate, 285

  • mandatory membership in, 286–287

  • organization of, 46

  • principles and best practices for, 282–287

  • in response to fiscal crisis, 291t

  • single resolution mechanism and, 234

  • supervision of, 286

  • timely payouts, 284

Deposit Guarantee Schemes Directive (DGS Directive), 175, 211, 212, 231, 254, 255, 263, 280

Deposit insurance, 254–255

  • funding, 256

  • merging with resolution fund, 256

  • national, 256

Deposit insurance fund, size of, 257

Deposit Insurance Fund (U.S.), 287

Deposit payoffs, 440n

Deposit rates, convergence of, 52, 54f, 55

Derivatives

  • effect of failing systemically important financial institutions on, 439

  • global financial crisis and, 97

Deutsches Rechnungslegungs Standards Committee, 370

Dexia, 98, 134, 181, 182b, 238

DG COMP. See Directorate-General for Competition (DG COMP)

DGS. See Deposit guarantee schemes (DGS)

Directorate-General for Competition (DG COMP), 5, 8, 18, 27–29, 468–469, 474

  • bank restructuring and, 125–126, 239

  • improving, 240

  • single resolution mechanism and, 248

Directorate-General Internal Markets Units F3 and F4, 370

Dodd-Frank Act, 399n, 439, 461

DTI. See Debt-to-income ratios (DTI)

Dublin, as financial center, 61, 98, 474

E

EBA. See European Banking Authority (EBA)

ECB. See European Central Bank (ECB)

Economic and Financial Affairs Council, 296n

Economic and monetary union (EMU), 42–43

EDIRF. See European deposit insurance and resolution fund (EDIRF)

EFFE. See European Financial Stability Framework Exercise (EFFE)

EFSF/ESM. See European Financial Stability Facility/European Stability Mechanism (EFSF/ESM)

EFSR. See European Financial Stability Facility (EFSF)

EIOPA. See European supervisor on insurance and pension funds (EIOPA)

Emergency Liquidity Assistance (ELA), 103, 184

Emerging European countries

  • adoption of euro by, 100–101

  • capital flows to, 51, 51f

  • macroprudential policies in, 381b

  • real private credit index, 101f

EMF. See European Mortgage Federation (EMF)

EMIR. See European Market Infrastructure Regulation (EMIR)

EMU. See Economic and monetary union (EMU)

ESAs. See European Supervisory Authorities (ESAs)

ESCB. See European System of Central Banks (ESCB)

ESM. See European Stability Mechanism (ESM)

ESMA. See European Securities and Markets Authority (ESMA)

ESRB. See European Systemic Risk Board (ESRB)

Estonia, 53, 60

ETFs. See Exchange traded funds (ETFs)

EUREX Clearing, 407

Euribor-OIS spread, 143f

Euro

  • adoption by emerging European economies, 100–101

  • commitment to adoption by emerging economies, 9–11

  • creation of, 2, 49

  • financial integration and, 50, 98–99

Euro area bank lending standards, 383–384b

EuroCCP, 395, 407

Euroclear, 394

Euroclear Bank, 33–34, 394

Euroclear S. A., 407

Eurogroup, 210, 231, 250

  • agreement on ESM direct recapitalization instrument, 275–276b

European Banking Authority (EBA), 3, 5, 24–25, 47, 227, 228, 298, 336

  • assessing systemic risk and, 311–313

  • binding powers, 313–314

  • board, 305, 306

  • consumer protection and, 314–315, 317

  • cross-sectoral issues and, 316, 317

  • data issues, 307

  • ensuring common supervisory practices, 473

  • establishment of, 207, 302

  • European Commission and, 305–306

  • financial innovation and, 314–315

  • fostering transparency, 313

  • governance recommendations, 316

  • institutional arrangements and accountability, 305–307

  • liquidity stress testing and, 329–331, 333

  • NSAs and, 307–308

  • oversight recommendations, 317

  • recapitalization and, 105

  • recapitalization exercise, 16, 113, 114–115, 123, 126, 379

  • recommendations for, 316–317

  • regulatory and supervisory actions, 171, 309, 316–317

  • role of, 163–164, 174

  • single supervisory mechanism and, 212

  • staff and budget, 307–308, 307t

  • stress testing and, 25b, 126, 328, 333

  • supervisory colleges and, 310b

  • supervisory convergence and, 309–311

European Central Bank (ECB), 25

  • accountability of, 215

  • addressing risks related to, 231–232

  • asset quality assessment and, 228–229

  • collateral policy, 49

  • common supervision at, 174

  • creation of, 43

  • division of responsibilities for bank supervision between national authorities and, 225–226

  • European Banking Authority and, 305

  • European Securities and Market Authority and, 350

  • European Systemic Risk Board and, 389–390, 391

  • EU Treaty change and, 261

  • financial crisis response and, 98, 169

  • firewalls and, 215

  • forerunner of, 43

  • governance of, 189, 214–215, 223–224

  • Governing Council, 19, 401

  • judging effectiveness of, 188–190

  • legal basis for supervisory framework, 197–199

  • as lender of last resort, 184, 203–204

  • macroprudential oversight and, 181, 222–223, 232, 297, 391

  • macroprudential policy and, 30–31, 141, 371–372

  • macroprudential risk identification and, 225

  • managing financial crisis, 102–104, 103t, 104f

  • objectives and mandates, 214

  • operational independence and legal protection, 214

  • Outright Monetary Transactions and, 107–108

  • oversight framework for payments, 35

  • price stability and, 214

  • principles, 217

  • resources/funding, 216

  • risk mitigation and, 85

  • role in asset management companies, 273–275

  • single resolution mechanism and, 233

  • single supervisory mechanism and, 19–20, 178–180, 181, 208–211

  • stress testing and, 296–297, 319–320, 328

  • supervision and, 4, 18, 174–175, 176

  • supervisory powers, 217–218

  • Survey on the Access to Finance of SMEs, 156, 159f

  • TARGET2 and, 34–35

  • tasks, 217

  • transparency for monetary policy, 293–296

  • transparency for single supervisory mechanism, 296–297

  • unconventional measures 2007-to date, 11, 13t

European Commission, 39, 41

  • European Banking Authority and, 305–306, 309

  • European supervisory authorities and, 298

European Council, 40n

  • BRRD and, 175

  • European Banking Authority and, 306

  • European supervisory authorities and, 298

European deposit insurance and resolution fund (EDIRF), 184

  • common fiscal backstop and, 203

  • funding, 202

  • legal basis for, 201–202

European Financial Committee–Financial Stability Table, 316

European Financial Reporting Advisory Group, 370

European Financial Stability Facility (EFSF), 17, 102, 106, 169, 378–379

European Financial Stability Facility/European Stability Mechanism (EFSF/ESM), 8

European Financial Stability Framework Exercise (EFFE), 7, 389

European financial system, systemic risk and vulnerabilities across borders, 8–16

European Insurance and Occupational Pensions Authority (EIOPA), 47, 336, 353–370

  • consumer protection and, 364–365

  • creation of, 302

  • harmonizing supervisory practices, 363

  • institutional structure, 358–369

  • occupational pensions, 365–366

  • overview of insurance and occupational pensions market, 353–357

  • powers and mandate, 360–361

  • Solvency II and, 366–368

  • Solvency II equivalence and international representation, 368–370

  • supervisory colleges and group supervision, 363–364

  • systemic risk and stress testing, 361–362

European Market Infrastructure Regulation (EMIR), 32, 336, 341, 350, 351, 378, 396, 397t, 399, 405

  • colleges, 35, 402–404

European Monetary Institute, 43

European Mortgage Federation (EMF), 409–410

European Multilateral Clearing Facility, 395, 407

European Parliament

  • European Banking Authority and, 306

  • European supervisory authorities and, 298

  • powers of, 39–40

  • single supervisory mechanism and, 171, 210

European Resolution Authority, 238

European Securities and Markets Authority (ESMA), 5, 47, 335–351, 378

  • Board of Supervisors, 337, 345–346, 347

  • budget, 339–340

  • CCP colleges and, 33, 400

  • cooperation among authorities and, 404, 403b

  • creation of, 302

  • crisis management and, 348–349

  • cross-sectoral arrangements, 349–350

  • direct supervision of CRAs, 344–346

  • draft technical standards, 396

  • European Banking Authority and, 305

  • funding, 339–340

  • future of, 350–351

  • governance, 337–339

  • guidelines, 23

  • identification and monitoring of risks, 346–347

  • institutional arrangements, 336–341

  • investor protection and, 349

  • legal powers, 401

  • Management Board, 338, 345

  • mandate, 298, 336–337

  • organizational structure and resources, 340–341

  • powers, 336–337

  • regulatory convergence, 341–342

  • role in crisis management, 405, 406

  • role in financial stability, 344–350

  • single rulebook, 341–342

  • strategic directions for, 27

  • supervisory convergence, 342–344

European Stability Mechanism (ESM), 17, 102, 169, 302, 471

  • accountability of, 268

  • application of, 266–267

  • asset management companies and, 266–267

  • asset valuation, 186

  • bank recapitalization and, 106

  • BRRD and, 237b

  • confidence effect of, 265

  • direct bank recapitalization tool, 185–187, 188

  • direct recapitalization by, 174–175, 230, 259, 263–264, 268–269

  • effectiveness of, 276

  • eligibility for, 266–267

  • establishment of, 193

  • euro area crisis and, 263

  • Eurogroup agreement on, 264–265, 275–276b

  • exit strategies, 186, 269

  • extent of capital shortfall covered, 267

  • governance of, 268

  • legacy assets, 186–187

  • mandate, 268

  • no first-loss guarantees, 269

  • operations, 268–269

  • ownership of banks and, 265–266

  • as patient, deep-pocket investor, 266

  • principles, 185–186

  • purpose of, 185, 264

  • recapitalization, 230–231

  • resources for, 186

  • risk mitigation and, 85

  • risk sharing and, 266, 267

  • role of, 164

  • role of bail-in and, 268

  • safeguards, 186

  • single supervisory mechanism and, 207, 277

  • in Spain, 239

  • transparency and, 268

  • valuation of bank equity, 267

  • work-out of impaired assets, 269–273

European Stability Mechanism (ESM) Treaty, Article 19, 230

European supervisor on insurance and pension funds (EIOPA), 5, 26–27

  • European Banking Authority and, 305

  • Financial Regulations, 358–359

  • Regulation (EReg), 358

European Supervisory Authorities (ESAs), 3, 18, 140, 336. See also European Banking Authority (EBA); European Insurance and Occupational Pensions Authority (EIOPA); European Securities and Markets Authority (ESMA)

  • data issues for, 307

  • establishment of, 7, 193, 302

  • European Systemic Risk Board and, 316, 372, 373, 389, 391

  • Joint Committee of, 315–316, 349–350

  • need to strengthen, 4–5

  • transparency and accountability and, 297–300

European Supervisory Handbook, 25

European Systemic Risk Board (ESRB), 18, 115, 232, 298, 300, 336, 371–392

  • ASC reports, 377–378

  • assessing systemic risk, 375

  • on capital requirements, 459

  • credibility of framework, 378–380

  • cross-sector risk assessment and, 24

  • effectiveness of instruments of, 378–380

  • establishment of, 7, 47, 140

  • European Banking Authority and, 305, 312

  • European supervisory authorities and, 316

  • European Union context, 372–373

  • macroprudential oversight and, 297, 388–391

  • macroprudential policies and, 29–31

  • mandate, 374

  • need to strengthen, 4–5

  • outputs of, 375–377

  • policy instruments, 374

  • purpose of, 465

  • Risk Dashboard, 377

  • risk warnings from, 375–376

  • role in crisis management, 380

  • role of, 164, 373–374

  • strengthening, 191

  • stress testing and, 319, 328–329, 333

  • structure, 374, 374f

European System of Central Banks (ESCB), 43, 197–198, 401, 404

  • central clearing counterparties and central securities depositories and, 396, 401

  • European Systemic Risk Board and, 375

European System of Central Banks (ESCB)-Committee of European Securities Regulators (CESR), 399

European System of Central Banks Statute, 295n

European System of Financial Supervision, 47, 336

European Union

  • banking union agreements, 174–176

  • as context for European Systemic Risk Board, 372–373

  • current account balances, 100f

  • effective macroprudential oversight for, 387–390

  • financial integration in, 141f

  • financial structure, 108f

  • global financial crisis and, 97–102

  • global insurance industry and, 353, 354f

  • public interventions in banking sector, 104–105, 105t

  • resolution frameworks in, 234–238

  • trends in nonperforming loans, 128f

European Union Court of Auditors, 210

European Union Court of Justice, 210

European Union (EU) financial system

  • global financial crisis and, 1, 2

  • integration of, 2

  • restoring financial stability, 2–3

  • structure, 108f

European Union institutions, 40f

  • development of, 39–43

European Union Treaty change, 238, 245, 253, 257, 261

Eurosystem, intermediation role of, 142f

“Eurosystem Oversight Policy Framework,” 402

Ex ante funding, 202, 281, 284, 287

Exchange traded funds (ETFs), 315

Exit strategies, European Stability Mechanism and, 186, 269

F

Fair value CDS spread (FVCDS), 73–74, 74f, 75b, 76f

Fair value spread, 73

Fair-value spread responses, sovereign vs. bank, 81–84, 82–84f

Fannie Mae, 98

FDIC. See Federal Deposit Insurance Corporation (FDIC)

Federal Agency for Financial Market Stabilization, 235b

Federal Deposit Insurance Corporation (FDIC), 180f, 213, 274b, 282n

  • leverage ratios and, 459

  • resolution of systemically important financial institutions and, 439–440, 440n

  • Single Point of Entry approach agreement, 463–464, 474

Federal Deposit Insurance Reform Act of 2005 (U.S.), 287

Federal Insurance Office of the U.S. Department of the Treasury, 369

Federal Reserve, 58, 180f, 213, 259, 270, 297

Federal Reserve Board, 459

Federation of European Accountants, 370

Finance, constraints on access to, 156–159, 157f, 158f, 159f

Financial Accounting Standards Board, 370

Financial centers, 49, 60–62, 474–476

  • cross-border credit and, 60

  • protection of, 164

  • risks of, 475

Financial Collateral Arrangements Directive, 396, 397

Financial innovation, European Banking Authority and, 314–315

Financial Innovation Standing Committee, 349

Financial institutions. See also Banks

  • Contingent Claims Analysis for, 71–76

  • interaction with sovereigns, 70–71, 71f

  • limits on size and activities of, 164

Financial integration, before global financial crisis, 49–68

  • banking structures in EU, 55–60

  • financial centers, 60–62

  • patterns of financial integration, 50–55

  • smoothing of economic cycles, 62–64

Financial intermediaries, funding of, 387

Financial market infrastructure, 32–35

  • Euroclear Bank, 33–34

  • European Central Bank oversight, 35

  • regulation, 32–33

  • TARGET2, 34–35

Financial market infrastructures (FMIs), 396–397

Financial Reporting (FINREP), 312, 313

Financial Sector Assessment Programs (FSAPs), 3, 8, 23, 112–114, 226, 301, 343, 368

  • Czech Republic, 120–121t

  • France, 116–117t

  • Germany, 116–117t

  • Luxembourg, 116–117t

  • Netherlands, 118–119t

  • Slovenia, 120–121t

  • Spain, 118–119t

  • Sweden, 118–119t

  • United Kingdom, 120–121t

Financial sector support (2008–11), 257t

Financial service directives, 43

Financial Services and Markets Authority, 34

Financial stability

  • European Securities and Market Authority and, 344–350

  • regional dimension in Europe for, 7–8

  • underpinning, 3–6

Financial Stability Board (FSB), 23, 370

  • bail-in and, 440

  • BRRD and, 236

  • exchange traded funds and, 315

  • “Key Attributes for Effective Resolution,” 214, 244, 473–474

  • principles for resolution, 102

  • resolution regime and, 459

  • standards for single resolution mechanism, 244

  • systemic risk and, 361

Financial stability framework, 21–35

  • DG COMP, 27–29

  • European supervisory agencies, 23–27

  • financial market infrastructure, 32–35

  • macroprudential policies and the ESRB 29–31

  • regulatory reforms, 22–23

  • structural reforms, 31–32

Financial supervision

  • De Larosiere Report and, 47

  • integrated financial market and, 44–46

Financial system, direct support for, 124–127

Financing structure, European Insurance and Occupational Pensions Authority, 358

Finland

  • availability of external finance in, 157

  • foreclosure process in, 420

FINREP. See Financial Reporting (FINREP)

Fiscal backstops, 230

  • deposit guarantee schemes and, 285

  • layers of, 259

  • liquidity, 260

  • single resolution mechanism and, 233, 252–253, 254–261, 257–260

FMIs. See Financial market infrastructures (FMIs)

Forbearance, 426

Foreclosure. See also Mortgage markets and foreclosure processes

  • in European countries, 421–425

  • judicial, 409, 419, 428

  • measures to prevent or delay, 426–427

  • methods, 419–420

  • nonjudicial, 409, 419, 428

  • in United States, 425–426

Foreign exposure, total intra-European Union, 10f, 50, 99, 99f, 100f

Foreign firms, regulation of, 45

Fortis, 98, 101–102, 181, 182b, 238

Fragmentation of the financial system, 139–165, 170f

  • during the crisis, 140–148

  • cross-border leveraging and deleveraging, 148–153

  • policy options to restore integration, 163–165

  • quantification of, 154f

  • real effects of, 153–163

France

  • banking system, 57

  • central clearing counterparties in, 394

  • cross-border credit and, 60

  • debtor liability in, 419

  • life insurers’ investments in, 354

  • national securities depository of, 34

  • risk indicators, GDP growth, and credit growth in, 88f

  • risks and vulnerabilities identified by recent FSAPs in, 116–117t

  • separating investment from commercial banking, 461–462

  • shock scenario analysis, 83

Frankfurt, as financial center, 61

Freddie Mac, 98

FSAPs. See Financial Sector Assessment Programs (FSAPs)

FSB. See Financial Stability Board (FSB)

Funding markets, counterparty risk and, 141, 143f

Funding pressure, 107–109

  • on euro area banks, 141, 143f

  • on financial markets, 16

FVCDS. See Fair value CDS spread (FVCDS)

G

GAAP. See Generally accepted accounting principles (GAAP)

Generally accepted accounting principles (GAAP), 57n

General Protocol, 363

Germany

  • availability of external finance in, 157

  • banking system, 56–57

  • bank liquid assets to short-term liabilities ratio in, 134

  • bank resolution in, 127

  • bond spreads in, 63, 64f

  • central clearing counterparties in, 394

  • central securities depositories in, 394

  • credit default swap spreads in, 63–64, 64f

  • debtor liability in, 419–420

  • deposit guarantee schemes in, 279

  • foreclosure process in, 420, 421, 422t

  • funding bank capitalization in, 470

  • home ownership rate in, 411

  • housing market policies, 415t

  • life insurers’ investments in, 354

  • nonperforming loans as percentage of gross loans in, 430t

  • real estate prices in, 416

  • residential-mortgage-debt-to-GDP ratio

  • in, 413

  • resolution tools, 234, 235b, 236

  • risk indicators, GDP growth, and credit growth in, 89f

  • risks and vulnerabilities identified by recent FSAPs in, 116–117t

  • separating investment from commercial banking, 461–463

  • unemployment rates in, 430t

GFSRs. See Global Financial Stability Reports (GFSRs)

Glass-Steagall Act, 460–461

Global financial crisis, 97–98

  • emergence from, 6–7

  • European Union financial integration before, 49–68

  • financial stability framework on eve of, 43–47

  • impact on EU financial markets, 1, 2

  • overcoming, 16–18

Global Financial Stability Reports (GFSRs), 8

Global systemically important banks (G-SIBs), 57–58, 58f

Global Systemically Important Financial Institutions, 236

Global vector autoregression (GVAR), 70, 80, 85, 87–94f

Good Practices for Disclosure and Selling of Variable Annuities, 364

Governance

  • of European Banking Authority, 316

  • of European Central Bank, 189, 214–215, 223–224, 293, 295–296

  • of European Securities and Market Authority, 337–339

  • of European Stability Mechanism, 268, 276

  • of European Supervisory Authorities, 297–300

  • of single resolution mechanism, 245–246

  • of single supervisory mechanism, 210, 296–297

  • of systemic risk board, 243b

Governing Council, 19, 224, 227, 295

Government support, for financial sector action, 238–241

Gradual approach, to establishing central resolution authority, 251–252

Greece

  • asset quality review in, 129, 130t

  • availability of external finance in, 157

  • bankruptcy/insolvency law reform in, 238

  • corrections in housing prices in, 416

  • current account balances, 51

  • debtor liability in, 419

  • financial crisis, 98, 102

  • foreclosure process in, 420, 422t

  • funding for banks in, 134

  • FVCDS in, 73

  • home ownership rate in, 411–412

  • housing market policies, 415t

  • nonperforming loans in, 127, 128, 430t

  • residential-mortgage-debt-to-GDP ratio in, 413

  • restructuring in, 127

  • risk indicators, GDP growth, and credit growth in, 89f

  • shock scenario analysis, 82, 84

  • unemployment rates in, 430t

Greek debt exchange, 12f

Group of 20 reforms, 393

Group supervisions, European Insurance and Occupational Pensions Authority and, 363–364

G-SIBs. See Global systemically important banks (G-SIBs)

GVAR. See Global vector autoregression (GVAR)

H

Hannover Summit (1988), 42

Harmonization stage, single resolution mechanism, 252

Helsinki Protocol, 363

Hierarchy of creditor claims, 183

Hollande, François, 461

Home ownership rates, 411

Household leverage, excessive, 109

Households, lack of borrowing by, 159–162, 159f, 162t

House price dynamic, mortgage markets and, 410–412, 411t

Housing markets, 410

Housing prices, correction in, 416–417

HRE, 134

Hub and spokes model, 218–219

Hungary

  • central securities depositories in, 394

  • financial crisis and, 98

  • foreclosure process in, 420

  • nonperforming loans in, 128

Hypostat, 409–410

I

IAIS. See International Association of Insurance Supervisors (IAIS)

Iberclear, 407

ICAAP. See Internal capital adequacy assessment process (ICAAP)

ICE Clear Europe, 394

Iceland

  • asset management companies and, 131

  • bank collapse, 98

ICSDs. See International central securities depositories (ICSDs)

IFRS. See International financial reporting standards (IFRS)

IG Markets, 315

IMD2. See Insurance Mediation Directive 2 (IMD2)

IMF. See International Monetary Fund (IMF)

Incremental Default and Migration Risk Charge modeling, 309

Indonesian Bank Restructuring Agency, 270

Information sharing, ECB supervision and, 227

Input data, stress testing, 322–324

Insolvency-related triggers for bail-ins, 441–442

Institutional coverage, of banking union, 178

Institutions for occupational retirement provisions (IORPs), 366

Insurance, 23

  • supervisory agencies, 26–27

Insurance and occupational pensions market, 353–357. See also European Insurance and Occupational Pensions Authority (EIOPA)

Insurance deposit fund, legal issues, 257

Insurance market capitalization, 15f

Insurance Mediation Directive 2 (IMD2), 23, 26, 357, 365

Insurance premiums, by country, 354f

Insurance & Reinsurance Stakeholder Group 358

Insurance sector integration, 42b

Interbank funding markets, 134

Interbank markets, 52

  • fragmentation in, 52, 53f, 141

Intercontinental Exchange (ICE) Clear, 395

Interest rates

  • banking stress and, 155f

  • environment, 357f

  • housing bubbles and, 414, 415t

  • on new loans to SMEs, 112f

Internal capital adequacy assessment process (ICAAP), 328

Internal Model Approach, 309

International Accounting Standards Board, 370

International Association of Insurance Supervisors (IAIS), 23, 361, 368, 370

International central securities depositories (ICSDs), 394–395, 404–405, 403b

International Federation of Accountants, 370

International Financial Accounting Standards, 323, 324

International Financial Reporting Standards (IFRS), 57n, 343, 370

International Monetary Fund (IMF), 149, 330, 361

  • Article IV consultations, 469n

  • bankruptcy/insolvency law reform and, 238

  • European financial stabilization and programs of, 8

  • Financial Sector Assessment Program, 3

  • macro-financial stress testing, 329b

  • resolution of cross-border banks framework, 449

  • support during financial crisis, 106

International Organization of Securities Commissions, 345

International standards

  • banking supervision and, 213

  • for capital adequacy and liquidity, 302–303

  • resolution, 236–238

  • single resolution mechanism, 244

Intra-group support agreements, 247

Investment banking, separating from commercial banking, 31, 460–464

Investments, insurance sector, 354–355, 356f

Investor protection, European Securities and Market Authority and, 27, 336, 337, 349

IOPS, 370

IORPs. See Institutions for occupational retirement provisions (IORPs)

Ireland

  • asset management companies in, 131, 132t

  • asset quality review in, 129, 130t

  • availability of external finance in, 157

  • corrections in housing prices in, 416, 417

  • credit-fueled construction boom in, 416

  • current account balances, 51

  • debtor liability in, 419

  • debt-to-GDP ratio in, 413

  • as financial center, 60, 474

  • financial crisis and, 98

  • foreclosure process in, 420, 421–425, 422t, 423b, 428

  • funding for banks in, 134

  • FVCDS in, 73

  • guaranteeing liabilities of banking system, 102

  • home ownership rate in, 411–412

  • housing market in, 410, 411t

  • housing market policies, 415t

  • National Asset Management Agency, 270b

  • nonperforming loans in, 127, 128, 430t

  • preventing or delaying foreclosure in, 427

  • real estate boom and bust in, 5–6

  • repossessions in, 417

  • resolution tools, 236

  • risk indicators, GDP growth, and credit growth in, 90f

  • shock scenario analysis, 82, 84

  • unemployment rates in, 430t

Italy

  • asset recovery in, 127

  • bankruptcy/insolvency law reform in, 238

  • central securities depositories in, 394

  • covered bond laws, 452

  • current account balances, 51

  • deposit guarantee schemes in, 279

  • financial crisis and, 98

  • foreclosure process in, 420

  • FVCDS in, 73

  • home ownership rate in, 411–412

  • nonperforming loans in, 127–128, 430t

  • residential-mortgage-debt-to-GDP ratio in, 413

  • restructuring in, 127

  • risk indicators, GDP growth, and credit growth in, 90f

  • shock scenario analysis, 81–85

  • sovereign, banking system, corporate sector expected loss ratio, real GDP growth and credit growth, 80, 81f

J

Joint Committee, 370

  • European Insurance and Occupational Pensions Authority and, 358

  • European supervisory authorities and, 315–316, 349–350

JP Morgan, 451

JP Morgan Chase, 98

Judicial foreclosure, 409, 419, 428

Judiciary, role in bail-ins, 442–443

Junior creditors, 258

K

KELER CCP, 407

“Key Attributes of Effective Resolution Regimes for Financial Institutions,” 214, 244

Korea Asset Management Institution, 131n, 270

L

Lamfalussy process, 7

Lamfalussy Report (2000), 43, 45f

Land and Conveyancing Reform Act, 421, 423

Landesbanken, 57

Latvia, 53, 60, 98

Laws, EU banking, 189

LBBW, 134

LCH.Clearnet Limited, 394, 395, 407

LCH.Clearnet SA, 407

Legacy assets, 186–187, 269–270

Legal basis

  • for bail-in, 434

  • of Banking Union, 21, 189, 193–204

  • of single resolution mechanism, 175–176, 243

Legal issues/risks

  • borrower restructuring, 238

  • deposit insurance and resolution funds, 257

  • single resolution mechanism, 242b, 243, 244, 253–254

Legislation, single supervisory mechanism and, 227

Lehman Brothers, 32, 98, 139, 150, 150t, 280, 439

Lender-of-last-resort

  • centralized, 203–204

  • European Central Bank and, 184

Lending rates, fragmentation and, 154, 156f

Leverage ratios, 459

Lex contractus, 446, 448

Lex fori concursus, 446

Liikanen, Erkki, 31, 461, 463, 464

Liikanen proposal, 164, 329, 461–464

Link Up Markets, 394

Liquidity assistance, bail-in and, 445

Liquidity backstops, 260

Liquidity buffers, 134

Liquidity in foreign currency, central banks and, 114

Liquidity outflows, bail-ins and, 454

Liquidity risk, 435

  • TARGET2 and, 34–35

Liquidity stress testing, 329–331, 333

Liquidity support, during financial crisis, 102–103, 105t

Lisbon Treaty (2009), 40

Lloyds TSB, 98

Loan markets, fragmentation of, 53, 55f

Loan modification, 426

Loan rates, convergence of, 52

Loans. See also Nonperforming loans (NPLs)

  • to non-MFIs by euro area banks, 68f

  • from nonresidents, 60, 60f

  • to private sector, 146

Loan-to-value (LTV) ratios, 382, 383–384b, 387, 390, 411, 415t

  • in Ireland, 421

London, as financial center, 60–61, 98, 474, 475

London Metal Exchange, 395

London Stock Exchange, 395

Long-Term Refinancing Operations (LTROs), 98, 103, 104f, 105t, 302, 376

  • effect of fragmentation on, 154

  • effects of phase-out of, 332

  • liquidity provision, 146

Loss-mitigation tools, 426–427

LTROs. See Long-Term Refinancing Operations (LTROs)

LTV. See Loan-to-value (LTV) ratios

Luxembourg

  • as financial center, 61, 98, 474

  • risks and vulnerabilities identified by recent FSAPs in, 116–117t

M

Maastricht Treaty (1992), 2, 40, 42, 43

Macroeconomic Assessment Group, 383b

Macroeconomic assumptions, stress testing and, 326–327

Macro-financial framework, DG-COMP and, 28

Macro-financial stress testing, 329b

Macroprudential oversight, 371–372. See also European Systemic Risk Board (ESRB)

  • in advanced EU countries, 383–384b

  • in emerging Europe, 381b

  • European Central Bank and, 181

  • interaction with single supervisory mechanism, 389–390

  • minimum set of macroprudential instruments, 387

  • recommendations, 391–392

  • within single supervisory mechanism, 222–223

  • toolkit, 380–387

Macroprudential policies, 141

  • European Systemic Risk Board and, 29–31

  • interaction with monetary policy, 385

  • intermediate objectives and instruments of, 377

  • single supervisory mechanism and, 211

Macroprudential powers, of European Central Bank, 232

Macroprudential risk, European Central Bank and, 225

Making Home Affordable framework, 427

Malta, 60

Mandates

  • European Insurance and Occupational Pensions Authority, 360–361

  • European Securities and Market Authority, 336–337

  • European Systemic Risk Board, 374

Mark-to-market balance sheets. See Contingent Claims Analysis (CCA)

Market Abuse Directive, 23, 405

Market cap and credit default swaps, European insurers, 357f

Market capitalization of banks, 77t, 104

Market risks, bail-ins and, 451–453

Markets and credit rating agency regulation. See European Securities and Markets Authority (ESMA)

Markets in Financial Instruments Directive (MiFID), 343, 349, 395

Markets in Financial Instruments Directive 2 (MiFID2), 2, 23, 26, 336, 341

MARP, 427

Mediation

  • European Securities and Market Authority and, 343

  • to prevent or delay foreclosure, 426

Memoranda of Understanding, 101–102

Meroni doctrine, 199, 243

Merton model, 71

MFI. See Monetary Financial Institution (MFI)

MiFID. See Markets in Financial Instruments Directive (MiFID)

MMFs. See Money market funds (MMFs)

Monetary Financial Institution (MFI), 141

  • share of cross-border holdings of financial assets, 67–68f

  • statistics, 52, 54f

Monetary policy

  • interaction with macroprudential policies, 385

  • transparency and accountability for, 293–296

Monetary Policy Report, 295

Monetary union, 8

  • principles guiding use of macroprudential instruments in, 385–386

Money market funds (MMFs), 377

  • exposure to bank CDs, repos, 141, 144f

Monte Titoli, 407

Moody’s CreditEdge, 73, 76

Moral hazard, 6

  • deposit guarantee schemes and limiting, 285–287

  • preventing or delaying foreclosure and, 428

  • public sector expenditure for failing banks and, 470

Mortgage Arrears Resolution Process, 423

Mortgage deductibility, 415t

Mortgage laws, 419–428

  • Spanish, 424b

Mortgage markets and foreclosure processes, 409–432

  • foreclosure in European countries, 420–425

  • foreclosure in the United States, 425–426

  • foreclosure methods, 419–420

  • house price dynamic and, 410–412

  • literature on foreclosure and policies to delay them, 427–428

  • measures to prevent foreclosure, 426–427

  • mortgage markets, 410–412

  • origin and end of two bubbles, 412–419

Mortgage securitization, 415t

N

NAMA. See National Asset Management Agency (NAMA)

National Asset Management Agency (NAMA), 131, 270b

National Association of Insurance Commissioners, 369

National Bank of Belgium, 34

National central banks (NCBs), 35

  • Emergency Liquidity Assistance and, 184

National competent authorities (NCAs)

  • banking union and, 189

  • European Securities and Market Authority and, 335, 344, 345, 348

  • specifying role of, 231–231

National Credit Union Administration, 180f

National DGS, 256

National financial sector assessments. See Financial Sector Assessment Programs (FSAPs)

National oversight of financial system, disadvantages of, 3–4, 6

National resolution funds and DGS, 260–261

National resolution regimes, 226

National sovereign support

  • during financial crisis, 105, 105t for financial system, 17

National supervision, of integrated financial market, 44–46

National supervisory authorities (NSAs), 24, 115

  • European Banking Authority governance and, 305

  • European Insurance and Occupational Pensions Authority and, 26, 361–362, 363, 364, 368

  • stress testing and, 319

NCAs. See National competent authorities (NCAs)

NCBs. See National central banks (NCBs)

Net financial assets (NFA)

  • of emerging Europe, 51f

  • of euro area periphery, 50f

Netherlands

  • bank liquid assets to short-term liabilities ratio in, 134

  • corrections in housing prices in, 416

  • covered bond laws, 452

  • debtor liability in, 419

  • downsizing large banks in, 468–469

  • foreclosure process in, 420, 421, 422t

  • funding bank capitalization in, 470

  • home ownership rate in, 411

  • housing market policies, 415, 415t

  • insurance penetration in, 353

  • national securities depository of, 34

  • residential-mortgage-debt-to-GDP ratio in, 413

  • risk indicators, GDP growth, and credit growth in, 91f

  • risks and vulnerabilities identified by recent FSAPs in, 118–119t

  • unemployment rates in, 430t

New York Stock Exchange–London International Financial Futures and Options Exchange (NYSE-Liffe), 395

NFA. See Net financial assets (NFA)

Nice Treaty (2000), 41

Non-euro area EU member states, banking union and, 191–192

Nonjudicial foreclosures, 409, 419, 428

Nonperforming loan (NPL) ratios, 128f, 129f

Nonperforming loans (NPLs), 113, 410

  • active management of, 238

  • asset quality deterioration and growth in, 127–128, 128f

  • bank restructuring and, 123

  • as percentage of gross loans, 430t

  • stress testing and, 323

Nonperforming mortgage, in U.S., 425

Northern Rock, 98

Norway, risk indicators, GDP growth, and credit growth in, 91f

NPLs. See Nonperforming loans (NPLs)

NSAs. See National supervisory authorities (NSAs)

NYSE-Liffe. See New York Stock Exchange–London International Financial Futures and Options Exchange (NYSE-Liffe)

O

Occupational pensions, European Insurance and Occupational Pensions Authority and, 365–366

Occupational pensions market, 353–357. See also European Insurance and Occupational Pensions Authority (EIOPA)

Occupational Pensions Stakeholder Group, 358

Office of the Comptroller of the Currency, 180f, 459

OMT. See Outright Monetary Transactions (OMTs)

Open bank assistance transactions, 440n

Operational risks, of European Central Bank supervision, 226

Orderly Liquidation Authority (U.S.), 439

Organizational structure

  • European Securities and Market Authority, 340–341

  • European Systemic Risk Board, 374, 374f

Outright Monetary Transactions (OMTs), 12f, 74n

  • direct recapitalization and, 185

  • effect on growth, 85

  • European Central Bank and, 102, 103t, 107–108, 134

  • framework for, 13, 14f, 169

  • reducing tail risks and, 376

  • retail deposit markets and, 141

  • stabilization of sovereign debt markets and, 146

  • use in Spain, 98

Oversight

  • of central clearing counterparties, 397t, 398–402, 399b

  • of central securities depositories, 397t, 398–402, 399b

  • European Banking Authority, 317

Over-the-counter derivatives, 393, 394, 396

P

P&A. See Purchase and assumption (P&A) transactions

Packaged Retail Investment Products, 23

Paris, as financial center, 61

Peer reviews

  • European Banking Authority and, 311

  • European Insurance and Occupational Pensions Authority and, 363

  • European Securities and Market Authority, 342–344

PFMI. See Principles for Financial Market Infrastructures (PFMI)

Poland

  • banking system, 56

  • central securities depositories in, 394

  • foreclosure process in, 420

Portugal

  • asset quality review in, 129, 130t

  • bank liquid assets to short-term liabilities ratio in, 134

  • bankruptcy/insolvency law reform in, 238

  • current account balances, 51

  • debtor liability in, 419

  • financial crisis and, 98

  • foreclosure process in, 421, 422t

  • FVCDS in, 73

  • home ownership rate in, 411–412

  • housing market policies, 415t

  • nonperforming loans in, 127, 430t

  • preventing or delaying foreclosure in, 427

  • real estate prices in, 416

  • restructuring in, 127

  • risk indicators, GDP growth, and credit growth in, 92f

  • shock scenario analysis, 82, 83, 84

  • unemployment rates in, 430t

Power-of-sale clause, 419

Powers

  • European Banking Authority, 313–314

  • European Insurance and Occupational Pensions Authority, 360–361

  • European Securities and Market Authority, 336–337

  • single resolution mechanism, 246–247

  • statutory bail-ins, 454

Preconditions, for single resolution mechanism, 244–245

Prerequisites, for single resolution mechanism, 245–246

Price stability, 214

  • policy trade-offs and, 295

Principles for Financial Market Infrastructures (PFMI), 399, 404

Pringle v Ireland, 203

Private bond market, 108f

Private capital, raising, 16

Private credit, 56f, 108f

Private-credit-to-GDP ratio, 385

Private sector, loans to, 146

Profitability, banking, 134–135, 135f

Public sector expenditure, for bailout-related expenses, 6–7, 469–470

Purchase and assumption (P&A) transactions, 440n, 449–450

Q

QISs. See Quantitative impact studies (QISs)

Quality Assurance Task Force, 115

Quality control mechanisms, stress testing and, 322

Quantitative impact studies (QISs), 356

R

Real estate boom-and-bust, financial stability and, 5–6

Real private credit, in emerging EU economies, 11f

Real private credit index, emerging European countries, 101f

RealtyTrac, 409, 426

Recapitalization, 16, 105, 106, 169–170, 263–277. See also Bail-ins; European Stability Mechanism (ESM)

  • confidence effect and, 265

  • direct, 259, 263–264, 268–269

  • direct government, 124–127

  • Eurogroup agreement on ESM direct recapitalization framework, 264–265, 275–276b

  • European Stability Mechanism direct, 230–231, 259

  • purpose, 264

  • role of European Central Bank, 273–275

  • work-out of impaired assets, 269–273

Recapitalization exercise, 113–115, 123, 126, 319, 379

Recapitalization tool, 185–187, 188

Recourse, 419–420

Recovery plans, 247

Redemption rights, 419

Regional firewalls, 169

Regulation

  • of financial markets, 32–33

  • of markets and credit rating agencies (see European Securities and Markets Authority (ESMA))

Regulatory actions, European Banking Authority, 316–317

Regulatory convergence, European Securities and Market Authority, 341–342

Regulatory framework

  • for central clearing counterparties and central securities depositories, 395–397

  • for European Union banking, 302–305

Regulatory impact assessments, European Insurance and Occupational Pensions Authority, 360

Regulatory reforms, 22–23

Regulatory Technical Standards (RTS), 309, 313

Rehn, Olli, 102

Reinsurance scheme, euro area, 260–261

“Report on the Cross-Border Cooperation Mechanisms between Insurance Guarantee Schemes in the EU,” 365

“Report on the Role of Insurance Guarantee Schemes in the Winding-Up Procedures of Insolvent Undertakings in the EU/EEA,” 365

Repossession, 409

Residential mortgage debt levels, 414f

Residential-mortgage-debt-to-GDP ratios, 413

Resolution, 124–127, 459–460

  • banking union and, 176–177

  • cost of, 469–470

  • cross-border financing of, 474

  • frameworks, 234–238

Resolution and Recovery Directive, 460, 471

Resolution fund, 16, 254–255

  • funding, 255–256

  • German, 234, 235b

  • harmonized national DGS and, 260–261

  • legal issues, 257

  • merging with deposit insurance fund, 256

  • scope of, 255

  • size of, 257

  • transitioning heterogeneous banks into, 260

Resolution fund/deposit guarantee scheme, 259

Resolution plans, 247

Resolution tools, 449–450. See also Bail-ins

Resolvability

  • enhancing, 31–32

  • Liikanen proposals and, 463

Restructuring. See Bank resolution and restructuring

Retail banking, 52

  • ring-fencing of, 31

Retail deposit markets, divergence of, 141, 144f

Retail lending conditions, 154, 156f

Return on equity distribution, 134–135, 135f

Ring-fencing

  • of domestic banking, 22

  • EBC and, 217

  • mitigating, 174

  • of retail banking, 31

  • single supervisory mechanism and, 472–474

Risk. See also Contingent Claims Analysis (CCA)

  • assessing systemic, 311–313

  • bank funding costs and, 451

  • European Insurance and Occupational Pensions Authority and systemic, 361–362

  • European Securities and Market Authority and identification and monitoring of, 346–347

  • mispricing of, 63

Risk-adjusted insurance premiums, 286

Risk-based approach, single supervisory mechanism and, 208–209

Risk-based supervision, 219–220

Risk Dashboard, 311–312

  • European Securities and Market Authority, 346

  • European Systemic Risk Board, 377

Risk identification, European Securities and Market Authority and, 27, 335–336

Risk indicators

  • European Union, 87–94f

  • U.S., 94f

Risk mapping exercise, 228

Risk mitigation

  • policies, 86t

  • single supervisory mechanism and, 227–232

Risks

  • contagion, 435, 453

  • counterparty, 435

  • findings from EU-wide stress tests, 113–121

  • findings from national financial sector assessments, 112–114

  • liquidity, 435

  • single resolution mechanism and transition, 250–251

  • wholesale funding markets,114

Risk sharing, European Stability Mechanism and, 266, 267

Risk warnings, from European Systemic Risk Board, 375–376, 378

Risk-weighted assets (RWAs), 133, 327, 386f

Romania

  • bank liquid assets to short-term liabilities ratio in, 134

  • financial crisis and, 98

  • macroprudential policies in, 381b

Royal Bank of Scotland, 315

RTS. See Regulatory technical standards (RTS)

RWAs. See Risk-weighted assets (RWAs)

S

SABER, 132

Safety nets, 184, 190, 199–204

  • banking union, 176–177

  • common deposit insurance and resolution fund, 184

  • lender-of-last-resort functions, 184

  • single resolution mechanism and, 233 254–261

SAREB, 270b

Satellite models, refinement of, 327

Savings Association Insurance Fund (U.S.), 286

Saxo Bank, 315

Scandinavia

  • asset recovery in, 127

  • repossession of collateral backing a retail mortgage in, 238

Scientific Committee of the European Systemic Risk Board, 459

Securities and Markets Stakeholder Group, 338

Securities clearing and settlement systems, 33–34. See also Central clearing counterparties (CCPs); Central securities depositories (CSDs)

Securities law legislation, 398, 403–404

Securities markets, supervisory agencies for, 27

Securum, 131n, 270

Settlement Finality Directive (SFD), 396–397, 405–406

SFD. See Settlement Finality Directive (SFD)

Shadow banks

  • stress testing and, 329

  • systemic risks and, 435

Shareholders, haircutting, 258

SIFI. See Systemically important financial institution (SIFI)

Single European Act (1986), 2, 41

Single Point of Entry agreement (U.S. and U.K.), 463–464, 474

Single Resolution Authority (SRA), 477

  • common fiscal backstop and, 203

  • legal basis of, 200–201

Single Resolution Board, 175

Single resolution legal regime, 201, 243

Single resolution mechanism (SRM), 20–21, 171, 172t, 233–262

  • accountability and, 245

  • alternative proposal for, 243

  • banking union and, 233

  • burden sharing and, 183

  • characteristics of, 182–183

  • common safety nets and backstops, 233, 254–261

  • deposit insurance, 254

  • design of, 181–184, 244–248

  • Directorate General for Competition and, 248

  • early intervention, 247–248

  • establishment of, 193, 194

  • European Commission proposal for, 241–243

  • fiscal backstops and burden-sharing arrangements, 257–260

  • governance of, 246

  • institutional considerations, 183–184

  • international standards and, 236–238, 244

  • legal basis for, 175–176, 199–201, 243

  • need for resolution tools, 234–236

  • objectives and mandate, 245

  • powers and tools, 247

  • preconditions, 244–245

  • prerequisites, 245–246

  • proposal for, 175

  • resolution funds and deposit and insurance, 254–257

  • risks to, 252–254

  • role of, 181

  • scope, 246–247

  • single supervisory mechanism and, 176–177, 181, 233–234, 248

  • steady-state considerations, 248–250

  • supplement to supervision, 176–177

  • transition, 250–252, 260–261

Single Rulebook, 204, 341–342

Single supervisory mechanism (SSM), 8, 18–20, 207–232

  • accountability of, 210

  • assessment, 211

  • bank balance sheet repair and, 17

  • bank coverage and, 209, 216

  • banking union success and, 188

  • Comprehensive Assessment, 229–230

  • cross-country lessons on, 212–213

  • delegated supervisory mechanism, 218–222

  • delegation within, 180–181

  • deposit guarantee schemes and, 282

  • design of, 174–175, 178–181

  • effect on economic growth, 466

  • enhanced transparency and, 466–467

  • establishment of, 170, 171, 172, 172t, 193, 194

  • European Banking Authority and, 18, 25

  • European Central Bank and, 178–180, 302

  • European Systemic Risk Board and, 18, 389–390

  • European Union features that constrain, 223–225

  • financial centers and, 475–476

  • initial proposal, 208

  • international standards and, 213

  • legal basis for, 197–199, 223

  • macroprudential oversight and, 211, 222–223, 371–372

  • mandate, 209

  • mitigation of risks, 227–232

  • non-euro area countries and, 191–192

  • operational details, 176

  • operational risks, 226

  • powers, 209, 217–218

  • preconditions, 213–214

  • prerequisites, 214–216

  • principles, 217

  • principles for design of, 212–223

  • ring-fencing and, 472–474

  • risks in division of responsibilities between center and national authorities, 225–227, 231–232

  • risks of proceeding with in time of crisis, 223–227

  • role of, 163, 178

  • single resolution mechanism and, 164–165, 176–177, 181, 233–234, 248

  • stress testing and, 319, 328, 333

  • supervision of international central securities depositories and central securities depositories and, 404, 403b

  • tasks, 209, 217

  • transitional risks, 224–225, 228–231

  • transparency and accountability for, 296–297

  • Treaty for Financial Stability and, 476–477

“Six Pack,” 169

Slovenia

  • asset management companies in, 131

  • risks and vulnerabilities identified by recent FSAPs in, 120–121t

Small- and medium-sized enterprises (SMEs)

  • credit and, 109

  • credit crunch and, 156–159, 157f, 158f, 159f

  • interest rate on new loans, 112f

  • met and unmet demand for bank credit, 112f

Solvency, stress testing and, 327–329

Solvency II, 5, 23, 26, 355, 356, 359, 360, 362, 366–368

  • equivalence certification, 368–370

Solvency ratios, 124

Sovereign-bank links, 216

Sovereign-bank loops, 171f, 273

Sovereign-bank stress, 155f

Sovereign bond markets, integration in, 51, 52f

Sovereign bond spreads, 63, 64f

Sovereign bond yields, 357f

Sovereign credit default swaps, 14f, 63–64, 65b, 152–153, 153t

Sovereign debt, insurance sector and, 356

Sovereign debt crisis, 63, 64f

Sovereign debt markets, OMTs and stabilization of, 146

Sovereign debt spread, 330

Sovereign expected loss ratios, 81, 83

Sovereign guarantees to bank creditors, 104, 105t

Sovereign risk, 141

  • bank funding costs and, 451

  • rising, 113

Sovereigns

  • Contingent Claims Analysis for, 71–74

  • interaction with financial institutions, 70–71, 71f, 109

  • risk mitigation policies, 86t

Spain

  • asset management companies in, 131, 132t, 270b

  • asset quality review in, 129, 130t

  • central securities depositories in, 394

  • corrections in housing prices in, 416, 417

  • credit-fueled construction boom in, 416

  • current account balances, 51

  • debtor liability in, 419

  • financial crisis and, 98

  • foreclosure process in, 420, 421, 422t, 424b, 425, 428

  • FVCDS in, 73

  • home ownership rate in, 411–412

  • housing market in, 410, 411t

  • housing market policies, 415, 415t

  • nonperforming loans in, 127–128, 430t

  • real estate boom and bust in, 5–6

  • repossessions in, 417

  • risk indicators, GDP growth, and credit growth in, 92f

  • risks and vulnerabilities identified by recent FSAPs in, 118–119t

  • shock scenario analysis, 81–85

  • state aid management in, 239

  • unemployment rates in, 430t

Sparkassen, 57

Spillover coefficient country groups, 12f

SRA. See Single Resolution Authority (SRA)

SRM. See Single resolution mechanism (SRM)

SSM. See Single supervisory mechanism (SSM)

Stability and Growth Pact, 98

Staff

  • European Banking Authority, 307–308, 307t

  • European Insurance and Occupational Pensions Authority, 359

Standards setting in accounting and auditing, EIOPA and, 370

Standing Committee on Accounting and Auditing, European Banking Authority, 308

Standing Committee on Financial Innovation, European Banking Authority, 308, 314–315

Standing Committee on Investor Protection, 315

Standing Committee on Oversight and Practices, European Banking Authority, 308, 309

Standing Committee on Regulation and Policy, European Banking Authority, 308

Standing committees, European Securities and Markets Authority, 337–338

State aid management, DG COMP and, 28

State Aid regime, 105

State aid rules, for financial sector action, 238–241

Statutory bail-ins, 437–440. See also Bail-ins

  • framework, 441–445

  • group issues and cross-border challenges, 445–449

  • market risks and mitigating measures, 450–453

  • scope of power, 454

Stock market capitalization, 60, 61f, 108f

Stock markets

  • depth of, 56f

  • role in financing economy, 49

Stressed Value-at-Risk (Stressed VaR), 309

Stress test, EU-wide, 311–312, 313

Stress testing, 3, 229, 319–334

  • bank recapitalization exercise and, 319

  • capital buffers, 113, 114

  • European Banking Authority and, 25b

  • European Insurance and Occupational Pensions Authority and, 26–27, 361–362

  • European Union-wide, 114–121

  • liquidity, 329–331

  • long-term priorities, 327–331

  • macro-financial, 329b

  • publication and transparency, 320–327

  • purpose of, 331–332

  • quality control mechanisms, 322

  • reviewing input data, 322–324

  • satellite models, 327

  • securities firms, 347

  • solvency and structural issues, 327–329

  • stress-testing exercises, 320

  • supervisory orientation, 324–327

Supervision. See also Single supervisory mechanism (SSM)

  • banking union and, 176

  • Basel Core Principles and effective, 179

  • of central clearing counterparties, 398–402, 399b

  • of central securities depositories, 398–402, 399b

  • of deposit guarantee schemes, 286

  • European Banking Authority and, 309–311, 316–317

  • European supervisory agencies and, 23–27

  • legal and institutional arrangements for centralized, 197–198

  • national approach to, 8

  • single supervisory legal regime, 198–199

  • stress testing and, 324–327

Supervisory colleges

  • central clearing counterparties, 402–404, 402b

  • crisis management framework and, 406

  • European Banking Authority and, 25, 310b

  • European Insurance and Occupational Pensions Authority and, 363–364

Supervisory convergence

  • European Insurance and Occupational Pensions Authority and, 360, 363

  • European Securities and Market Authority and, 335, 337, 342–344

Supervisory framework

  • for central clearing counterparties and central securities depositories, 395–397, 397t

  • integrated, 197–199

Supervisory Handbook, 311

Supranational support, 17, 106

SwapClear, 394

Sweden

  • banking system, 57

  • capital adequacy through cycle in, 386

  • central clearing counterparties in, 394

  • foreclosure process in, 420

  • risk indicators, GDP growth, and credit growth in, 93f

  • risks and vulnerabilities identified by recent FSAPs in, 118–119t

  • single supervisory mechanism and, 472

  • TARGET2-Securities and, 398

Swedish Bank Authority, 250

Swiss National Bank, 131, 259, 274b

Swiss Stabilization Fund, 131, 259

Switzerland

  • residential-mortgage-debt-to-GDP ratio in, 413

  • risk indicators, GDP growth, and credit growth in, 93f

Systemically important financial institution (SIFI), 226

  • effect of failing, 434–435, 439

  • resolving (See Bail-ins)

Systemic risk assessment, 311–313

  • European Systemic Risk Board and, 375

Systemic risk exception, 183

Systemic risks/vulnerabilities across borders, 8–16

T

Tail events, planning for, 258

TARGET2, 5, 43, 108, 141, 169, 398

  • soundness of, 34–35

TARGET2-Securities (T2S), 397–398

Taxpayer contributions, 258

TEU. See Treaty on the European Union (TEU)

TFEU. See Treaty on the Functioning of the European Union (TFEU)

Thai Financial Sector Restructuring Agency, 131n, 270

Third Credit Rating Agency Directive, 23

Tier 1 capital ratios, 123, 126f, 133

Tier 1 capital requirement, 115

Too-big-to-fail banks, 253

Trading income, 327

Transfer price, asset management companies and, 271

Transitional equivalence, 368–370

Transparency

  • European Banking Authority role in fostering, 313

  • for European Central Bank’s monetary policy, 293–296

  • European Insurance and Occupational Pensions Authority and, 358

  • European Stability Mechanism and, 268

  • for European Supervisory Authorities, 297–300

  • furthering financial integration through, 466–467

  • for single supervisory mechanism, 296–297

  • stress testing and, 126–127, 320–327

Treaty for Financial Stability, 476–477

Treaty of Amsterdam (1997), 41

Treaty of Luxembourg (1970), 40n

Treaty of Rome (1957), 2, 39, 41

Treaty on Stability, Coordination and Governance, 169

Treaty on the European Union (TEU)

  • Article 20, 200

  • Article 48, 194

Treaty on the Functioning of the European Union (TFEU), 125–126, 125n, 194

  • Article 107, 239n

  • Article 113, 202

  • Article 114, 175–176, 199–201, 242b, 243

  • Article 125, 203

  • Article 127(6), 19, 189, 197, 212, 214, 223

  • Article 354, 200

  • single supervisory mechanism and, 212

Trichet, Jean-Claude, 375

Triggers, bail-in, 441–442, 454

Troubled Asset Relief Program, 271

U

UBS, 131–132

Undertakings for Collective Investment in Transferable Securities Directive, 23

United Kingdom

  • asset management companies in, 131

  • asset recovery in, 127

  • banking union and, 163

  • bank resolution in, 127

  • central clearing counterparties in, 394

  • corrections in housing prices in, 416

  • covered bond laws, 452

  • debtor liability in, 419

  • deposit guarantee schemes in, 279

  • downsizing large banks in, 468–469

  • as financial center, 60–61 (see also London)

  • Financial Reporting Council, 370

  • foreclosure process in, 420, 421, 422t

  • funding bank capitalization in, 470

  • home ownership rate in, 412

  • housing market policies, 415t

  • insurance penetration in, 353

  • life insurers’ investments in, 354–355

  • nonperforming loans as percentage of gross loans in, 430t

  • Office of Fair Trading, 395

  • repossessions in, 238, 417

  • resolution for systemically important

  • financial institutions in, 440

  • resolution tools, 234

  • risk indicators, GDP growth, and credit growth in, 94f

  • risks and vulnerabilities identified by recent FSAPs in, 120–121t

  • separating investment from commercial banking in, 461

  • single supervisory mechanism and, 472

  • TARGET2-Securities and, 398

  • unemployment rates in, 430t

United Nations Commission on International Trade Law, 447

United States

  • banking group assets, 124, 124f

  • banking integration in, 58–60, 59f, 62

  • banking supervision in, 212–213

  • banks under supervision, 180f

  • corrections in housing prices in, 417

  • covered bond laws, 452

  • debt-to-GDP ratio in, 413f

  • deposit guarantee schemes in, 282n, 283, 286–287

  • EIOPA and, 369

  • Federal Deposit Insurance Corporation (see Federal Deposit Insurance Corporation (FDIC))

  • foreclosure processes in, 421, 422t, 425–426, 428–429

  • foreclosure rate in, 417, 418f

  • Glass-Steagall Act, 460–461

  • home ownership rate in, 411, 412

  • housing bubble in, 412–419

  • housing market in, 409–412, 411t

  • housing market policies, 415, 415t

  • money market fund exposure, 141, 144f

  • nonperforming loans as percentage of gross loans in, 430t

  • nonperforming loans trends in, 128f

  • recourse in, 420

  • residential-mortgage-debt-to-GDP ratio in, 413

  • resolution for systemically important financial institutions in, 439–440

  • risk indicators, GDP growth, and credit growth in, 94f

  • unemployment rates in, 430t

U.S. Maiden Lane LLCs, 131n, 270

U.S. Resolution Trust Corporation, 131n, 270

V

Vickers, John, 31, 461

Vickers report, 164, 329

Vienna Initiative, 2, 22, 53, 127n, 139, 152, 165

Volcker Rule, 31, 329, 461

Volksbanken, 57

Vulnerabilities

  • findings from EU-wide stress tests, 114–121

  • findings from national financial sector assessments, 112–114

  • source of, 107–111

W

Wholesale financing, bank reliance on, 134

Winding-Up Directive, 405, 447

Working Group on Analysis Tools, 312

Working Group on Instruments, 312

World Economic Outlook, 135, 149

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