NPLs & Bank Crisis Framework: Learning from COVID-19
Following the Global Financial Crisis, the EU significantly upgraded the regulatory regime for EU banks. This included legislation to strengthen banks’ capital and liquidity and a number of reforms aimed at addressing the “too big to fail” issue, ensuring that large and complex banking organisations can be resolved without deploying taxpayers’ money. The Bank Recovery and Resolution Directive (BRRD) introduced a resolution regime, recovery and resolution plans, requirements on bail-in and loss absorbing capacity. Although not perfect and not quite complete in places, the regulatory landscape that the EU has in place is now significantly stronger enabling EU policymakers, regulators and the banks in a much better place to withstand times of economic stress.
Whereas significant progress has been made by the EU on upgrading the regulatory regime post financial crisis, less progress has been made by many banks’ repairing their balance sheets. Banks capital positions have strengthened but asset quality – non-performing loans (NPLs) and forbearance – drove deteriorations in loan portfolio’s. There has been pressure on banks to contain cost, deleverage and restructure whilst the level of profitability of many European banks is low. The average return on equity for all EU banks is around 3 percent, well below their cost of capital.
Low profitability in banking has real economic consequences. It restricts the extent to which banks can fund growth from retained earnings; it makes raising new equity and debt more difficult and more expensive; it constrains the options available to banks in implementing their recovery plans; and raises questions about their viability and sustainability. Most importantly, low profitability weakens the ability and willingness of banks to finance the European economy. The EU has been suffering from such a downward spiral since the financial crisis, as evidenced by subdued bank lending, weak or negative economic growth, and high levels of NPLs.
The COVID-19 pandemic is having an unprecedented impact on the European economy. Banks weathered the initial fall-out well but as problems shift from liquidity to solvency and the temporary Government credit provision support programmes get closer to ending it is inevitable that NPLs will rise further, especially for those banks with high exposures to the most vulnerable sectors of the economy.
Over the past few months the European Commission, and also the ECB have been hinting that they are looking to get ahead of the pending problems and revise the EU bank crisis management framework and develop a comprehensive policy to address NPLs’. Planning for the worst, but hoping for the best, makes perfect sense and the expectation is that the Commission will come forward with proposals before the end of 2020.
This event looks at what is needed to minimise the pending fallout from COVID-19. Is it simply an issue of tweaking the BRRD to simply the process for precautionary recapitalisations and liquidity support? Do Early Intervention Measures also need to be revisited? To address the problem of NPLs is it an issue of reaching political agreement on the two parts of the Draft Directive on credit services, credit purchasers and the recovery of collateral, or does Europe need an EU-wide Asset Management? Do bank insolvency laws and debt enforcement rules need to be harmonised across Member States?
All of these issues are highly political, potentially crucial to the recovery of the EU economy and provide for fruitful discussion for this event with the European Commission as well as representatives from the private sector.
- Webinar link: https://zoom.us/j/99403466594
Date
- Expired!
Time
CET
Organiser
Daniel Trinder
Phone
+32473190128Senior Policy Adviser
Other Organizers
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Luca Giusti
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Phone
+32471915475 -
Email
Luca.Giusti@aforeconsulting.eu -
Consultant
Speakers
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Alvaro Benzo Gonzalez-ColomaPartner, PwC SpainDouble degree in Finance (Instituto de Estudios Bursátiles, Madrid, Spain) and Law. Post-graduate degree from the Executive Program of IESE Business School. Chartered Financial Auditor, registered in Spain.
He started his career as Bank Supervisor at the Central Bank of Spain carrying out on-site Inspections of medium large sized banks in Spain.In 2008, he joined the EU Commission as part of the Financial Crisis Task Force created in response to the financial crisis in Europe. During this period he was designated Team Leader responsible for Banking Issues. At the Commission he
worked with DG COMP as part of the working group evaluating the state aid decisions and restructuring cases for the banking sector, on behalf of DG ECFINHe represented the EU Commission in the EU-IMF financial assistance programs in Ireland and Spain where he played an active role in the AQR and Stress test exercises, in the review and redesign of some of the supervisory frameworks in those countries as well as in the restructuring and resolution of Spanish and Irish banks.
He was also involved in the EBA EU-Wide stress tests representing the EU Commission in the methodological Expert Group that designed the methodology of these exercises.
He was also involved in the drafting and negotiation of different legislative packages such as CRD IV, the creation of the ESM, the Bank Resolution and Recovery Directive, the proposals to establish the SSM and the Single Bank Resolution Mechanism, amongst other regulatory proposals of the EU Commission.
He participated in the set up of the European System of Financial Supervision and the Single Supervisory Mechanism in the Eurozone.
Finally, In 2013, he joined PwC as a Partner in the FS Risk & Regulation Division. At PwC he has lead different engagements for EU banks in the areas of ICAAP, ILAAP, Risk Appetite Frameworks, Recovery Plans, Resolution Plans, RAROC methodologies, NPL reduction strategies, amongst others.
Recently, he has led the engagement for the implementation of a Risk–based Supervisory System for the banking system in Kazakhstan and he has participated in a similar assignment in a EU country.He also works as a Professor in different post-graduate programs with London School of Economics, Instituto de Empresa (IE), Universidad de Navarra (UNAV) and IEB Business school in Spain
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David CookExecutive Director, Regulatory Affairs, IHS MarkitDavid Cook heads European Regulatory Affairs at IHS Markit, managing the firm’s relationships with regulators and providing advice on the regulatory and policymaking environment. Before joining IHS Markit, he was with the Foreign and Commonwealth Office leading the negotiation of EU financial services regulation for the UK in Brussels and developing legislation such as MIFID II and EMIR. During the financial crisis, David was part of the crisis management and financial stability teams at the UK Financial Services Authority. He began his career at HM Treasury and also worked at the Department for International Development. David holds both a BA and MPhil in Classics from the University of Liverpool.
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Matt HolmesManaging Director, Government and Regulatory Affairs, Deutsche BankMatt Holmes is Managing Director and Head of Regulatory Policy & Advocacy for Deutsche Bank. In that role he is responsible for managing the bank’s engagement with key regulatory policy debates globally and has been closely involved in preparation for Brexit.
Before joining Deutsche Bank in 2010, Matt headed up the financial services practice in a leading UK public affairs consultancy and prior to that worked as a policy advisor at HM Treasury covering financial services and regulatory issues.
He has an MSc from the London School of Economics and a BA from the University of Cambridge. -
Peter GrasmannHead of EU/Euro Area Financial System Unit, DG FISMA, European CommissionPeter Grasmann studied economics and statistics at Munich University and University of California at Berkeley. He holds a PHD in economics. Previously he worked as lecturer at Munich University and CALTECH and later at German Hypo-Bank as analyst and broker. He joined the European Commission in 1991, where he first worked on financial integration and capital movements, later on forecasting for the EU economy and subsequently on candidate and potential candidate countries. After a year of secondment to the International Civilian Office in Kosovo (UN1244) (2008-2009), he returned to the European Commission in Brussels to lead a team on dealing with the EU financial system. Since 2020, he also leads the Commission’s unit on economic and financial sanctions.