Twinning project funded by The European Union
Deputy Governor,
Bulgarian National Bank
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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• THE COORDINATED EU RESPONSE TO THE CRISIS
• GLOBAL SOLUTIONS TO THE CRISIS
• REGULATORY PACKAGE
• INSTITUTIONAL CHANGES
• EXIT FROM FINANCIAL SUPPORT MEASURES
• NATIONAL VERSUS EU MEASURES
• BULGARIAN RESPONSE
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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Common principles and main lines of actions agreed on ECOFIN
Council - October 7, 2008:
• public intervention has to be decided at national level but must be part of a coordinated framework
• cross-border effects of national decisions have to be taken into account
• recapitalization of vulnerable systemic financial institutions
• distortion of treatment between US and European banks due to differences in accounting rules must be avoided.
• deposit guarantee protection - at least 50,000 euro
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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•
Registration and oversight of rating agencies
•
Common guidelines for transparency about risk exposures
•
Improvements of the “executive-pay” model
•
Clear guidelines on valuation, applied consistently
•
Strengthening cross-border stability arrangements - EU wide MoU
•
Enhanced effectiveness of supervision and convergence and harmonization in the implementation of rules.
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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15 November 2008 - G20 Declaration outlines the strategy for reforming the existing financial architecture
Main G-20 proposals:
•
Strengthen the regulatory systems, prudential oversight and risk management
•
All financial markets, products and participants to be regulated or subject to oversight
•
Promote integrity in financial markets
•
Enhance international cooperation - college of regulators
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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Lessons from the crisis and the need for regulatory reform
•
Need for common EU supervisory response
•
Need for changes in the accounting framework
•
Improving quality of capital
•
Dealing with the cyclicality of finance
•
Liquidity issues
•
Transparency & disclosure of important information
•
Supervisory cooperation
•
Introduction of new tools for early intervention and crisis management
•
Stress tests
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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2009: Directive 2007/44/EC
– changes in the assessment of acquisitions and increase of holdings in the financial sector;
2010: CRD II (Directives 2009/111 /ЕC, 2009/83/ЕC and 2009/27/ЕC) – changes in own funds items, large exposures, supervisory arrangements, crisis management, securitisation, technical risk management provisions;
2011: CRD III (not yet approved and numbered)
– changes in the Trading book capital requirements, re-securitisations and the supervisory review of remuneration policies;
2011: Directive 2009/110 /ЕC – putting electronic money institutions outside the credit institutions area;
CRD IV (no Commission proposal yet) – as regard quality of capital, liquidity risk standards, counterparty credit risk and dynamic provisioning .
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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25 February 2009 - De Larosi ère Report
31 recommendations:
– Towards a new regulatory agenda – to reduce risk and improve risk management ; to improve systemic shock absorbers ; to weaken pro-cyclical amplifiers ; to strengthen transparency ; and to get the incentives in financial markets right.
– Towards stronger coordinated supervision – macro-prudential and micro-prudential, built on existing structures but much stronger and coordinated
– Towards effective crisis management – to build confidence among supervisors with agreed methods and criteria.
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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23 September 2009 – The EU Commission proposals for a new European financial supervisory architecture :
•
European System of Financial Supervisors (ESFS) - a network of national financial supervisors working in tandem with new European Supervisory Authorities
(ESAs)
•
European Systemic Risk Board (ESRB) – to monitor and assess potential threats to financial stability that arise from macro-economic developments and from developments within the financial system as a whole
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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Macro supervision – systemic risks, financial stability
ECB
ESRB
Micro supervision – individual banks
EBA banking
ESFS
EIOPA – insurance, pension funds
ESMA
– securities markets
National Supervisory Authorities
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Council
Lamfalussy model
EC Parlament
De Larosiere model
(from 2010 / 2011 г.)
ECB
ESRB - European
Systemic Risk
Board
EBC EIOPC ESC EFCC
The newly proposed
EU regulatory framework allows the application of network approaches
CEBS CEIOPS CESR implementati on
ESFS – European System of Fina ncial Supervisors
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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02 December 2009 - ECOFIN Council agreed the following principles for exit strategies:
•
Phasing out of the public support measures in order to avoid negative spill-over effects
•
The timing of exit should take into account all relevant factors and individual Member State’s circumstances
•
The phasing out of support should normally start with government guarantees.
•
Existing legal framework should be taken into account, including the relevant state aid decisions and the legitimate interest to minimize the potential loss of public money
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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Capital injections
Guarantees on bank liabilities
Relief of impaired asset
Austria
Belgium
Bulgaria
Cyprus
Cz Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Total approved measures
15.1
17.9
0
0
0
14.1
0
0
24.0
104.4
5.0
1.0
11.0
20
0.3
0
Effective capital injections
4.7
20.9
0
0
0
5.5
0
0
Total approved measures
Guarantees granted
Total approved measures
70.6
240.8
0
0
0
580
0
50
18.8
55.5
0
0
0
5.8
0
0
15.0
27.7
0
0
0
0
0
0
Effective asset relief
1.2
27.7
0
0
0
0
0
0
22.8
48.7
3.8
0.1
10.8
1.5
0.2
0
319.8
445.0
15.0
5.2
275.0 n.a
5.0
0
105.1
170.7
3.0
0
275.0
0
0.5
0
4.7
32.5
0
0
0
0
0
0
4.7
32.5
0
0
0
0
0
0
Liquidity and bank funding support
Total approved measures
Total for all
Effective approved liquidity intervention measures
Total effective for all measures
0
0
8.0
0
0
0
2.1
0
4.4 n.a.
0
0
0
0.7
0
0
4.4 n.r.
0
0
0
0.6
0
0
0
0
4.5
2.3
0
0
0.9
0
105.1
286.3
0
0
0
594.7
0
50
348.4
581.9
28.0
6.2
286.0
20
7.4
0
29.1
104.1
0
0
0
11.9
0
0
132.5
251.9
11.3
2.4
285.8
1.5
1.6
0
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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Capital injections
Guarantees on bank liabilities
Relief of impaired asset
Liquidity and bank funding support
Total for all approved measures
Total effective for all measures
Luxemburg
Malta
The
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
UK
Total EU
Total Euro
Area
Total approved measures
Effective capital injections
Total approved measures
Guarantees granted
Total approved measures
Effective asset relief
Total approved measures
Effective liquidity intervention
2.5
0
2.9
0
4.5
0 n.r.
0
0
0
0
0
0.3
0
0.3
0
37.1
0
4.0
0
0
0
0
4.6
54.0
314.8
240.9
39.6
0
0
0
0
0.2
0
0.5
155.7
200
0
16.5
0
0
12.0
200
137.2
40 337.0
202.0 2,913.4
1,849.1
45.0
0
5.4
0
0
2.3
22.3
31.1
175.0
917.8
705.4
22.8
0
0
0
0
0
0
0
0
102.7
102.7
22.8
0
0
0
0
0
0
0
0
88.9
88.9
43.5
0
0
0
0
0
30
35.5
255.2
379.8
86.2
9.2
0
0
0
0
0
19.3
0
37.7
7.3
0
303.3
0
20.5
0
0
12.0
230
177.3
2,278.8
3.2
0
116.5
0
5.4
0
0
2.5
41.6
31.6
228.0 646.2 442.9
269.5 3,710.7 1,478.1
987.6
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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• THE BUFFERS OF THE BULGARIAN BANKING
SYSTEM
• MEASURES TOWARDS THE BANKING SYSTEM
• CHANGES IN REPORTING CULTURE
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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The conservative application of the capital adequacy regime in
Bulgaria and the maintenance of increased capital requirements by banks provided for a “cushion” against unexpected losses during the crisis:
•
12% minimum capital adequacy ratio
•
Non-inclusion of interim profit until 2008
•
Increased risk weights in Retail and Mortgages
•
Conservative approach to usage of prudential filters
•
Reduced reliance on hybrids and other non typical capital instruments
•
Introduction of a specific supervisory provisions, aimed at capturing the amount of potential future losses
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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Some of the most important steps to insure the smooth functioning of the banking systems were:
• Reduction of the minimum reserves requirement in 2008;
• Increased frequency of on-site visit, focused on risk areas;
• Increased dialogue with the bank managers;
• Banks to keep additional capital above the regulatory minimum;
• Banks to keep liquidity ratios above the regulatory minimum;
• Requiring regular stress tests under different assumptions
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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•
Increased dialogue with home supervisors, focused on issues of the local subsidiary
•
Issuing recommendation for non-distribution of dividends by banks;
•
Raising the minimum guaranteed amount of customer deposits to 50,000 EUR in 2009
•
Widening the scope of supervision – introduction of registration requirements for other financial institutions (e.g.
leasing, cash credit, etc.)
•
No state aid or government guarantees were provided to commercial banks during the crisis
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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•
Raising the importance of supervisory reporting as a key function in commercial banks - it should not be a secondary task of the accounting department;
•
Difference between financial and supervisory reporting -
COREP is a tool for supervisory reporting and FINREP is a tool for financial reporting;
•
Supervisory reporting is best done by risk managers;
STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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Q3 2007
Q3 2008
Q3 2009
Profitability
Q3 2007
Q3 2008
Profit (pre tax)
483,558
625,744
Q3 2009 355,366

All sums in thousands EUR
Total assets
26,540,326
35,457,373
35,740,050
7%
77%
Change
-
+33.60%
+0.80%
Structure (2009)*
16%
Locally ow ned banks
Foreign subsidiaries
Branches of foreign institutions
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Q3 2007
Q3 2008
Q3 2009
Own funds
2,634,590
3,878,743
4,806,729
Change
-
+47.22%
+23.92%
Cap. adequacy
13.85%
14.35%
17.34%
Retail loans Change Corp. loans Change
Q3 2007 5,881,314 10,790,387 -
Q3 2008 8,572,246 +45.75% 16,046,307 +48.71%
Q3 2009 9,390,127 +9.54% 16,625,315 +3.61%

All sums in thousands EUR
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STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY
OF THE FINANCIAL REGULATORS
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