Conferences & Workshops
The workshop will be held in auditorium of EY's premises at 1 More London Place, London SE1 2AF. The closest stations to the venue are London Bridge (National Rail), Tower Hill and Tower Gateway (DLR).
Thursday, 13 March 2014
Hotels close to the conference venue:
Apex City of London Hotel, 1 Seething Lane, London EC3N 4AX
Grange City Hotel, 8-14 Cooper's Row, London EC3N 2BQ
Hotel Novotel London Tower Bridge, 10 Pepys Street, London EC3N 2NR
DoubleTree by Hilton Hotel London - Tower of London, 7 Pepys Street, EC3N 4AF
Hilton London Tower Bridge, Tooley Street, London SE1 2BY
SUERF/Banque de France Conference - The Financial Reconstruction of Europe
Friday, 22 November, 2013
Banque de France Auditorium
Speeches and Presentations - As Available
Friday, 22 November, 2013
|08.30||Registration and coffee|
|Opening||09.00||Opening and Welcome|
|Urs Birchler, University of Zürich and SUERF President|
Christian Noyer, Governor, Banque de France
|Mario Monti, former Italian Prime Minister & former SUERF President|
|Session 1||09.40||Addressing Macroeconomic, Structural and Policy Issues|
|Moderator & Speaker||Peter Praet, Board Member, European Central Bank|
|Ewald Nowotny, Governor, Oesterreichische Nationalbank
|Huw Pill, Chief European Economist, Goldman Sachs
|Session 2||11.30||Restructuring the Banking Sector and Ensuring the Single Market for Financial Services|
|Moderator||Morten Balling, Aarhus University and SUERF|
|Charles Goodhart, London School of Economics|
|David T. Llewellyn, Loughborough Uni. & former SUERF President
|Jean Tirole, Toulouse School of Economics
|Frédéric Visnovsky, Deputy Secretary General, Autorité de Contrôle Prudentiel et de Résolution
|Moderator||Urs Birchler, University of Zürich & SUERF President|
|Niels Thygesen, Copenhagen University & Former SUERF President
|Session 3||14.40||Enhancing European Governance|
|Moderator||Marc-Olivier Strauss-Kahn, Banque de France|
|Franco Bruni, Bocconi University & former SUERF President|
|Esther George, President, Federal Reserve Bank of Kansas
|François Villeroy de Galhau, BNP Paribas
|Ignazio Visco, Governor, Banca d'Italia
|Panel||16.30||Which financial Europe for the future?|
|Moderator||Ernest Gnan, Oesterreichische Nationalbank & SUERF|
|Anne le Lorier, Deputy Governor, Banque de France
|Frank Lierman, Belfius Bank and SUERF Vice President
|Catherine Lubochinsky, Global Risk Institute & former SUERF President
|William White, Chairman, European Development & Review Committee, OECD
|18.00||End of Conference|
SUERF/Banque de France Conference - The Financial Reconstruction of Europe
Friday, 22 November, 2013
Banque de France Auditorium 31, rue Croix des Petits Champs F-75001 Paris
Morten Balling, Aarhus School of Business and Social Sciences, Aarhus University and SUERF
Morten Balling is Professor Emeritus at the Aarhus School of Business and Social Sciences, Aarhus University, Denmark. He has been a council member of the Société Universitaire Européenne de Rechèrches Financières since 1994, having served as Vice President of the Association between 1997 and 2000, and is the Managing Editor and Chairman of the Editorial Board. He holds directorships of some Danish companies and foundations and has written widely on monetary, banking and financial topics.
Urs Birchler, University of Zurich and SUERF President
Urs Birchler is Professor of Banking at the Department for Banking and Finance at Zürich University, having previously worked at the Swiss National Bank, where he was Director of the Financial Stability Unit, and having previously been a member of the Bank's Basel Committee on Banking Supervision and Chairman of its Basel Committee Research Task Force. His university teaching commitments have dealt with the theory of financial intermediation, banking and banking regulation, financial stability, game theory and economics of information, and has included appointments at the Universities of Zurich, St Gallen, Bern, Lausanne and Leipzig. His research has also focused strongly on banking, bank insolvency law and deposit protection, and recently he has co-authored a policy report on the "Implicit Government Guarantee for Big Banks" and a textbook on "Information Economics". He is also an active blogger on www.batz.ch - the forum for Swiss economy policy.
Franco Bruni, Bocconi University
Full Professor of International Monetary Economics. From 1994 to 2000: Director of Bocconi's Institute of Economics. Member of Bocconi's Centre for Research on Monetary and Financial Economics "Paolo Baffi". Vice-President and scientific director of ISPI, Milan's Institute for International Political Studies. Member of the European Shadow Financial Regulatory Committee and was formerly on the Council of Management of SUERF, acting as President between 1997 and 2000. He has worked for parliamentary and governmental study groups on the Italian banking and financial system. Member of the editorial board (former Editor) of the Giornale degli Economisti e Annali di Economia, of the advisory board of the Journal of Financial Stability and of the scientific committee of the Rivista di Politica Economica. Up until 1990 he was a full professor of Economics and Finance at the Università di Brescia. Has been a member of the Founding Committee of the Università di Bolzano, visiting scholar and visiting professor at New York University, University of California at Berkeley, Chulalongkorn University of Bangkok, Università Getulio Vargas of Sao Paulo, University of New South Wales in Sydney, UBC in Vancouver, and Fudan University in Shanghai.
Esther L. George, Federal Reserve Bank, Kansas
Esther L. George is president and chief executive officer of the Federal Reserve Bank of Kansas City and a member of the Federal Open Market Committee, which has authority over U.S. monetary policy. Before being appointed president on Oct. 1, 2011, she had been the Bank's first vice president and chief operating officer since August 2009, responsible for directing the Bank's operations throughout the Tenth Federal Reserve District. Additionally, she recently served as the acting director of the Federal Reserve's Division of Banking Supervision and Regulation at the Board of Governors of the Federal Reserve System in Washington, D.C. In January 2009, George was named executive vice president in charge of the Bank's Division of Supervision and Risk Management, a division she led as senior vice president since 2001. In that position, she was responsible for the supervision and regulation of the District's 170 state-chartered member banks and nearly 1,000 bank and financial holding companies, as well as the Bank's discount window and risk management functions. During her tenure in banking supervision, she was directly involved in the Tenth District's banking supervision and discount window lending activities during the banking crisis of the 1980s and post-9/11. She is a former chair of the Federal Reserve System's Community Banking Organizations Management Group. George, a Missouri native, joined the Bank in 1982 and was appointed to the official staff in 1995. She has held various leadership positions with the Bank, including in the Bank's research support functions, Public Affairs and Human Resources. Beyond the Tenth Federal Reserve District, George's experience in international central banking issues includes involvement with the Bank for International Settlement's Financial Stability Institute programs in Lima, Peru, and Abu Dhabi, U.A.E. She has also served as the Tenth District's lead officer for international partnership programs involving the central banks of Morocco and Iraq. Additionally, she hosts the Federal Reserve Bank of Kansas City's annual economic policy symposium in Jackson Hole, Wyoming, that is attended by central bankers from around the globe.
Ernest Gnan, Oesterreichische Nationalbank and SUERF Secretary General
Dr Gnan received his PhD in economics at the University of Economics and Business Administration, Vienna, in 1989. He started out his professional career as an investment fund manager in 1987 and joined the Oesterreichische Nationalbank as an economist in 1988. In 1992, he moved to the European Commission, DG ECFIN, in Brussels and in 1994 to the European Monetary Institute, the ECB's forerunner institution, in Frankfurt. In 1998, Dr Gnan became Deputy Head of the Oesterreichische Nationalbank's Foreign Research Division; since 1999, he has been Head of the Bank's Economic Analysis Division. In 2006, he was appointed Counsel to the Board. Dr Gnan is member of the European Central Bank's Monetary Policy Committee and member of the Austrian Government Debt Committee. Dr Gnan also has served as Secretary General of SUERF – The European Money and Finance Forum since 2007. Dr Gnan has been giving numerous lectures on issues related to macroeconomics, monetary union and European integration; since 1999, he has been adjunct professor at Webster University Vienna, and since 2005 lecturer at the University of Vienna. His publications cover monetary policy; inflation; globalisation, economic growth; economic, institutional and legal aspects of European Monetary Union; exchange rate policy, the European Monetary System, the ERM2 and the international monetary system; and the institutional status of central banks.
Charles Goodhart, London School of Economics and Political Science
Charles Goodhart, CBE, FBA is Emeritus Professor of Banking and Finance with the Financial Markets Group at the London School of Economics, having previously, 1987-2005, been its Deputy Director. Until his retirement in 2002, he had been the Norman Sosnow Professor of Banking and Finance at LSE since 1985. Before then, he had worked at the Bank of England for seventeen years as a monetary adviser, becoming a Chief Adviser in 1980. In 1997 he was appointed one of the outside independent members of the Bank of England's new Monetary Policy Committee until May 2000. Earlier he had taught at Cambridge and LSE. Besides numerous articles, he has written a couple of books on monetary history; a graduate monetary textbook, Money, Information and Uncertainty (2nd Ed. 1989); two collections of papers on monetary policy, Monetary Theory and Practice (1984) and The Central Bank and The Financial System (1995); and a number of books and articles on Financial Stability, on which subject he was Adviser to the Governor of the Bank of England, 2002-2004, and numerous other studies relating to financial markets and to monetary policy and history. His latest books include The Basel Committee on Banking Supervision: A History of the Early Years, 1974-1997, (2011), and The Regulatory Response to the Financial Crisis, (2009).
Anne Le Lorier, Deputy Governor, Banque de France
Anne Le Lorier has a degree from the Institut d'Études Politiques de Paris and an MA in law. After graduating from the École Nationale d'Administration in 1977, she joined the Treasury, at the Ministry of Economy and Finance, where she spent most of her career. Having started in the office in charge of the State Treasury and Monetary Affairs, in 1981 she was appointed as France's Alternate at the International Monetary Fund. In 1983, she returned to the Treasury as head of the office in charge of the Foreign Exchange Market and the Balance of Payments. An adviser in the private office of the Minister for the Economy, Finance and Privatisation in 1987, in 1988 she was appointed Assistant Director for Government Shareholding then Debt and Development in the Treasury from 1988 to 1993 and Vice-President of the Paris Club. In April 1993, she became Adviser on Economic Affairs in the Prime Minister's private office, then in 1995 Adviser on Economic and European Affairs. In 1996, she became head of the Financing and Government Shareholding Department in the Treasury, then in 1998 head of the Monetary and Financial Affairs Department and, in this capacity, Censor of the Banque de France. In 2001, she joined the company Fimalac as a specially-appointed adviser to the Chairman and a member of the Executive Committee. From October 2001 to April 2002, she was assigned by the Minister for the Economy, Finance and Industry to work on combating the financing of terrorism with the Director of the Treasury. In April 2002, she joined the EDF group, where she occupied various posts: Director, then Deputy Director General, of Corporate Finance and Treasury Management of the EDF group and, from April 2010, Director delegated to the Secretary General, with responsibility for the Group Risks Directorate and the Audit Directorate. She has been awarded the honours of Chevalier de l'Ordre National du Mérite and Officier de la Légion d'Honneur.
Frank Lierman, Belfius Bank and SUERF Vice President
Frank Lierman is Chief Economist of Belfius Bank, having previously held the role at Dexia Bank Belgium. Previously he worked at the Artesia Banking Corporation and its predecessor Paribas Bank Belgium in a number of capacities: Economic Research, Marketing, Organisation, Asset Management, Euro-Project. He is a member of the Council of Management of SUERF – the European Money and Finance Forum, serving on its Editorial Board and became the Association's Vice President in May 2011. He is also co-president of the Coordination Committee of the Belgian Financial Forum (BFF) and serves as head of the BFF's Revue Bancaire et Financière, as well as a member of the Economic and Financial Affairs Committee of the European Association of Public Banks (EAPB). He has authored numerous publications on the solvency and profitability of Belgian financial institutions, and on various financial and macroeconomic topics. He holds a degree in Economic Sciences from the Catholic University of Leuven.
Catherine Lubochinsky, Global Risk Institute
Professor Catherine Lubochinsky joined GRI as Managing Director, Research, effective February 4, 2013. Ms. Lubochinsky was until recently Professor of Economics and Finance at the University of Paris. Her teaching experience spanned a wide variety of courses including financial markets, fixed income, derivatives and interest rates. Her recent research focused on derivative strategies, credit spreads, credit rating agencies, financial regulation and fund management. Ms. Lubochinsky is a member of the "Cercle des Economistes" and the European Shadow Financial Regulation Committee (ESFRC). She has been President of the European Money and Finance Forum (2006-2012), an advisor to several private sector financial institutions over the years and a consultant to the Financial Markets and Stability Department of Banque de France. Within Europe, Ms. Lubochinsky is widely recognized as an authority in the field of financial risk management and is a frequent speaker at professional conferences and for the business media. She is the author/editor of several books and a number of articles, in both French and English, on the challenges facing the global financial service sector. Ms. Lubochinsky holds PhDs in Finance and Economics from the University of Paris (Panthéon-Sorbonne) and from the University of Orléans. She was a visiting researcher at Brown University and a summer intern at the International Monetary Fund.
David T. Llewellyn, University of Loughborough and SUERF
David Llewellyn is Professor of Money and Banking at Loughborough University, and Honorary Visiting Professor at the CASS Business School in London; Visiting Professor at the Vienna University of Economics and Business; External Member, Centre for Cooperative Studies, Kellogg College, University of Oxford; Associate Senior Research Fellow, at the Centre for European Policy Studies (Brussels). He is Consultant Economist to ICAP plc. He has recently been working with several central banks on aspects of the global financial crisis and Resolution strategies. His recent research includes a project at the Centre for European Policy Studies in Brussels on the economics and role of European cooperative banks, and a second project at the CEPS for the European Parliament on trends in European banking.
Previous career appointments include serving as an economist at Unilever (Rotterdam), HM Treasury (London), and the International Monetary Fund (Washington). Between 1994 and 2002 he was a Public Interest Director of the Personal Investment Authority (the UK regulator of retail financial services until it was superseded by the FSA). He serves as a consultant to financial firms, management consultancy firms, and regulatory agencies in several countries including South Africa where, in 2004, he was appointed by the Minister of Finance to be a member of a Task Group to investigate competition in the South African Banking industry. He has been a consultant to the World Bank and the International Monetary Fund, and has been a member of an IMF international advisory committee on governance in supervisory agencies. For several years he was a member of the London Advisory Board of the Halifax Building Society and has served as a consultant to the Building Societies Association and several mutual building societies in the UK. He is a member of the Advisory Board of the European Banking Report at the Italian Bankers Association. Between 2004 and 2008 he was a member of the Banking Panel of Bank Indonesia. In 2004 he was a consultant to HM Treasury on governance in life mutuals (Myners report), and was a member of the PricewaterhouseCoopers team investigating the macro economic impacts of the Basel II Accord for the European Commission. In 2005-6 he was a member of the IESE Business School team commissioned by the EU Commission to investigate the retail banking industry in EU countries. He is a member of the Council of Management of SUERF - The European Money and Finance Forum (a network association of bankers, central bankers, financial practitioners and academics), and was its President between 2000 and 2006. He has written extensively on the analysis of banking and financial markets and their regulation. Books include: Financial Regulation: Why, How and Where Now? (with Charles Goodhart and others), The Economic Rationale of Financial Regulation (FSA Occasional Paper No.1), Surveys in Monetary Economics, Vols 1 and 2 (with Chris Green), The New Economics of Banking, (SUERF Study, No. 5), and Islamic Banking and Finance (with M Iqbal), The Global Banking Crisis and the Post Crisis Banking and Regulatory Scenario. He has written extensively in journals and in conference proceedings including: Prompt Corrective Action: Ten Years On, and Market Discipline in Banking: Theory and Practice both edited by George Kaufman.
Mario Monti, Former Prime Minister of Italy and Former SUERF President
Mario Monti was Prime Minister of Italy from 2011 to 2013. In addition, he is Honorary President of Bruegel, a European think-tank for economic policy, and member of the Reflection Group on the Future of Europe in 2020-2030, established by the European Council and presided by Felipe González. He was Member of the European Commission for a decade, first as Commissioner for Internal Market, Financial Services and Financial Integration Customs, and Taxation (1995-1999), and then for Competition (1999-2004). In addition to dealing with major antitrust cases (such as GE/Honeywell, Microsoft, and the German Landesbanken), he introduced radical reforms in EU antitrust regulation and control of excessive market concentrations. He also led, along with US authorities, the creation of the International Competition Network (ICN).
He was nominated Member of the Commission pour la libération de la croissance française established by the President of the French Republic Nicolas Sarkozy and presided by Jacques Attali. He has been Coordinator of the European Union for the trans-European project of electrical interlinking between France and Spain. Born in Varese in 1943, Mario Monti graduated in Economics and Business at Università Bocconi and did post-graduate studies at Yale University. Prior to joining the European Commission, he was Professor of Economics at Università Bocconi and then Rector from 1989 to 1994. He served as President of SUERF between 1982 and 1985.
Ewald Nowotny, Governor, Oesterreichische Nationalbank
Ewald Nowotny is the Governor of the Oesterreichische Nationalbank (OeNB) and a Member of the Governing Council of the European Central Bank (ECB). Before taking on his current position in September 2008, Ewald Nowotny held a number of high-level positions in financial institutions. He was CEO of the Austrian BAWAG P.S.K. banking group from 2006 to 2007, served as Vice-President and Member of the Management Committee of the European Investment Bank (EIB) in Luxembourg from 1999 to 2003, and, between 1971 and 1979, was first a Member and then President of the Governing Board of Österreichische Postsparkasse (P.S.K.). Moreover, from 1992 to 2008, Ewald Nowotny served on the supervisory boards of several banks and corporations and was a member of the OeNB's General Council from 2007 to 2008. Ewald Nowotny was born in Vienna, Austria, in 1944. He studied law and political science at the University of Vienna and economics at the Institute for Advanced Studies (IHS) in Vienna. In 1967, he received his doctorate in law from the University of Vienna. After working as assistant to Professor Kurt W. Rothschild at the Institute for General Economics and Public Economics of the University of Linz, Austria, from 1968 to 1973, Ewald Nowotny received his postdoctoral qualification (tenure-track professorship – "Habilitation") in General Economics and Public Economics in 1973, and subsequently held research tenures and professorships at Harvard University, TH Darmstadt, Germany, and the Johannes Kepler University Linz, Austria. From 1981 to 2008, Ewald Nowotny served as Full Professor at the Vienna University of Economics and Business Administration, where he also held the position of Vice Rector from 2003 to 2004. In 2008, Ewald Nowotny received an honorary doctorate in Social and Economic Sciences from Alpen-Adria-Universität Klagenfurt, Austria. Ewald Nowotny has published numerous articles in refereed journals. He has also authored or coauthored nine books; the fifth edition of his internationally renowned textbook "Der öffentliche Sektor – Einführung in die Finanzwissenschaft" was published in 2008. He was an elected Member of the Austrian Parliament from 1978 to 1999 and served as chairman of the parliamentary Finance Committee from 1985 to 1999.
Christian Noyer, Governor, Banque de France
Christian Noyer studied law in Rennes and Paris and subsequently graduated from the Institut d'études politiques de Paris. In 1974, following his military service as an officer in the Navy, he entered the École nationale d'administration (ENA). Appointed to the Treasury in the Ministry of the Economy and Finance in 1976, he subsequently spent two years in Brussels (1980-82) at France's permanent representation to the European Communities. Back at the Treasury, he held a range of posts dealing with both domestic issues (government cash and debt management, banking affairs, financing of industry and state-owned enterprises) and international affairs (multilateral issues, export financing). He was appointed Head of the Treasury in 1993. Other posts held include advisor to Edouard Balladur, then Minister of Finance (1986-88), and Chief of Staff for two other Ministers of Finance, Edmond Alphandéry and Jean Arthuis (1993 and 1995-97 respectively). He was appointed Vice-President of the European Central Bank in 1998 when the institution was set up in Frankfurt, and occupied this position until 2002. His European and international experience includes several years serving on the European Monetary Committee, the position of alternate for the Minister of Finance at the OECD, the G7 and the G10, the position of alternate Governor at the IMF and World Bank, and the chairmanship of the Paris Club (1993-1997). Since 1 November 2003, he has been Governor of the Banque de France, where he chairs the General Council. He has been reapointed in October 2009.
He is Chairman of the "Autorité de contrôle prudentiel" (ACP), the Banking Mediation Committee and the Observatory for Payment Card Security. He also chairs the supervisory boards of the Institut d'émission des départements d'Outre-Mer (IEDOM - the French overseas departments note-issuing bank) and the Institut d'émission d'Outre-Mer (IEOM - the French overseas note-issuing bank). He is a member of the Governing Council and General Council of the European Central Bank, Chairman of the Bank for International Settlements and alternate Governor at the International Monetary Fund. He has been awarded the honours of Commandeur de la Légion d'Honneur and Chevalier de l'Ordre National du Mérite in France also Commandeur dans l'ordre des Arts et des Lettres, and has received decorations from several other countries, notably the Ordre National du Lion from Senegal and the Gran Cruz de la Ordén del Mérito Civil from Spain.
Huw Pill, Goldmann Sachs
Huw Pill is the chief European economist and co-head of the Economics team in Europe. Based in London, he serves on the Macro Research Operating Committee. Huw joined Goldman Sachs as a managing director in August 2011. Prior to joining the firm, Huw worked at the European Central Bank, where he was deputy director general of Research and head of the Monetary Policy Stance Division. Earlier, he worked at the Bank of England and at Harvard University, where he was an associate professor of business administration. Huw earned a BA in Politics, Philosophy and Economics from University College, Oxford, in 1989 and an MA and PhD in Economics from Stanford University in 1990 and 1995, respectively.
Peter Praet, European Central Bank
Peter Peter Praet joined the European Central Bank as Member of the Executive Board in 2011. He is responsible for Economics, Human Resources, Budget and Organisation and Statistics. Before joining the ECB, Peter Praet was Executive Director of the National Bank of Belgium (2000-2011). Here he was responsible for International Cooperation, Financial Stability and Oversight of Financial Infrastructures and Payments Systems. Between 2002 and 2011, he was also a Member of the Management Committee of the Belgian Banking, Finance and Insurance Commission (CBFA), where he was responsible for Prudential Policy for banking and insurance.
Peter Praet served as Chief of Cabinet for the Belgian Minister of Finance from 1999- 2000, as Chief Economist of Générale de Banque and Fortis Bank from 1988-1999, as Professor of Economics at the Université Libre de Bruxelles from 1980-1987, and as Economist at the International Monetary Fund from 1978-1980. He earned a Ph.D. in Economics from the Université Libre de Bruxelles in 1980. Peter Praet served on several high-level international committees, including the Basel Committee on Banking Supervision, the Committee on Payment and Settlement Systems, the Committee on the Global Financial System, and the European Banking Authority. He was First Alternate of the Board of Directors of the Bank for International Settlements from 2000-2011.
Niels Thygesen, Copenhagen University
Niels Thygesen is Professor Emeritus of International Economics at the University of Copenhagen. He obtained his undergraduate and graduate degrees there and an MPA from Harvard University. After working for the Danish government, Harvard's Development Advisory Service (in Malaysia), and the OECD in Paris, he held a Chair at the University of Copenhagen for more than 30 years, serving also as Adviser to the Governor of Danmarks Nationalbank, Chair of the Danish Economic Council and member of various expert groups on European monetary and financial integration – the subject area of most of his research and publications over the last four decades – and international economics. He was an independent member of the Delors Committee which prepared the outline of Economic and Monetary Union in Europe in 1988-9, a member of the committee advising the government of Sweden on an exit from the crisis of the early 1990s, a member of the Group of Independent Experts evaluating IMF surveillance following the Asian crisis, and he chaired the Economic and Development Review Committee of the OECD which evaluates the economic performance and policies of member states 2000-8. He is a Founder Member of the European Shadow Financial Regulatory Committee since 1998 and the only Honorary Fellow of the Danish Economic Association.
Jean Tirole, Toulouse School of Economics
Jean Tirole is chairman of the Foundation JJ Laffont-Toulouse School of Economics (TSE), and scientific director of the Institute for Industrial Economics (IDEI), University of Toulouse Capitole. He is also affiliated with MIT, where he holds a visiting position, and with the Institute for Advanced Study in Toulouse (IAST), which he helped found in 2011. Before moving to Toulouse in 1991, he was professor of economics at MIT. He was president of the Econometric Society in 1998 and of the European Economic Association in 2001. He holds Honorary Doctorate degrees from the Free University in Brussels (1989), the London Business School (2007), HEC Montreal (2007), the University of Mannheim (2011), the Athens School of Business and Economics (2012), the University of Rome 2 (2012), Hitotsubashi University (2013) and Université de Lausanne (2013). Among other prizes and honors, he received the Yrjö Jahnsson prize of the European Economic Association (granted every other year to an economist under the age of 45 who has made a contribution in theoretical and applied research that is significant to economics in Europe) in 1993, the gold medal of the CNRS in 2007 (the second economist, after Allais in 1978, to receive this medal, attributed to one researcher every year since 1954), and was the inaugural winner of the BBVA Frontiers of Knowledge Awards in economics, finance and management in 2008. He received the CME-MSRI award and the Levi-Strauss prize in 2010 and the Ross prize in 2013. He is a foreign honorary member of the American Academy of Arts and Sciences (1993) and of the American Economic Association (1993). He was elected to Allais' chair at the French Académie des Sciences Morales et Politiques in 2011. Jean Tirole has given over seventy distinguished lectures and has published about two hundred articles in economics and finance, as well as 11 books. He received his PhD in economics from MIT in 1981, engineering degrees from Ecole Polytechnique, Paris (1976) and from Ecole Nationale des Ponts et Chaussées, Paris (1978) and a "Doctorat de 3ème cycle" in decision mathematics from the University Paris IX (1978).
François Villeroy de Galhau, BNP Paribas
François Villeroy de Galhau began his career as Senior Auditor at the French Treasury (1984-1988). He served as European Advisor to Pierre Bérégovoy (1990-1993) when the latter was Prime Minister. He held various positions at the Treasury Directorate (1993-96), before being appointed Financial Advisor in Brussels. In this role, he participated in the creation of the euro. Subsequently, he became Head of Cabinet under Dominique Strauss-Kahn (1997-1999) and then under Christian Sautter (1999-2000) at the Ministry of the Economy and Finance. He then held the post of Director-General of Taxes (2000-2003). In 2003, François Villeroy de Galhau became CEO of Cetelem, the consumer credit subsidiary of the BNP Paribas Group. After the merger of Cetelem and UCB, he became CEO of BNP Paribas Personal Finance (2007), and then Head of French Retail Banking (FRB), and took a seat on BNP Paribas' executive committee (2008). He has said that he likes the good mix of ethics and ambition within the Group. François Villeroy de Galhau was appointed as Chief Operating Officer on 1st December 2011. François Villeroy de Galhau is on the board of directors of ADIE, a business development association. He is a member of the Commission pour la liberation de la croissance française (a commission in charge of analysing the brakes on growth in the French economy) which was chaired by Jacques Attali in 2007 and in 2010. François Villeroy de Galhau is on the supervisory board of the Bayard Presse Group and of Villeroy & Boch AG (Sarre). He was a lecturer in Economics at Sciences Po Paris (school of political science) from 1996 to 2005. François Villeroy de Galhau is a graduate of the École Polytechnique and l'ENA (National School of Public Administration).
Ignacio Visco, Governor, Banca d'Italia and Chairman of the joint Governing Board of the Insurance Supervisory Authority
As Governor of the Bank of Italy, Dr. Visco is a member of the Governing Council and General Council of the European Central Bank, the General Board of the European Systemic Risk Board, the Board of Directors of the Bank for International Settlements, the Steering Committee of the Financial Stability Board, the Boards of Governors of the World Bank, and the Asian Development Bank. He is also Alternate Governor for Italy at the International Monetary Fund and the Inter-American Development Bank. From 1997 to 2002 he was the OECD Chief Economist.
Frédéric Visnovsky, Deputy Secretary General, Authorité de Contrôle Prudentiel et de Résolution
Frédéric Visnovsky has a long experience in banking supervision. After being successively in charge of accounting Department, he was Head of the international department during Basel 2 negotiation and then Deputy Director and Director for Supervision of Mutual Banks (2004 – July 2011) during the recent financial crisis.
Now Deputy Secretary General (ACP) since July 2011, he is at the ACPR in charge of the departments dealing with the supervision of large banks (global Sifis), study, IT and budget. Member of EBA Board of Supervisors and chairman of its Standing Committee on Accounting Reporting and Auditing (SCARA) and member of the French Accounting Committee (ANC). He is also currently in charge for France of the Asset Quality Review to be done in the context of the new Single Supervisory Mechanism.
William R. White, OECD
William White is currently Chairman of the Economic and Development Review Committee of the OECD, which provides policy recommendations to members as well as other important countries in the global economy. Until last year, he was a member of the Issing Committee, which advised Chancellor Merkel of Germany on matters pertaining to international financial stability. He has also been a featured speaker at numerous events organized by the G-20 on related topics. Mr White is on the Advisory Board of the Globalisation and Monetary Institute at the Federal Reserve Bank of Dallas, as well as that of the Institute for New Economic Thinking, recently established with the support of George Soros. Mr White continues to do research on issues pertaining to monetary and financial stability. He has published both academic papers and shorter articles of interest to the serious press. As well, he regularly makes associated presentations, tailored to a wide variety of audiences, worldwide. His website (www.williamwhite.ca) brings together his recent contributions. A career central banker, Mr White held the position of Chief Economist at the Bank for International Settlements (BIS) in Basel for 14 years, heading one of the world's most highly regarded teams of macro economists. They were prescient in predicting the global financial and economic crisis and identifying the role played by easy monetary and credit conditions. Prior to joining the BIS, White spent 22 years with the Bank of Canada, serving latterly as Deputy Governor. Mr. White's early career was spent at the Bank of England, where he was an economist from 1969 to 1972. He received his PhD from the University of Manchester in 1969, where he was supported by a Commonwealth Scholarship.
The value of banks and their business models to society
Report of the SUERF/ De Nederlandsche Bank / Rabobank Conference
held in Amsterdam on Friday 4 October 2013
by Leontine Treur (Rabobank)
Banks play a central role in the functioning of the economy. Not only do they allocate financial resources, they also collectively create money in the process of granting loans. In this way, they have a considerable impact on the type of activities that are financed in society. During the financial crisis, it became clear that the banking sector at large was not sufficiently stable and customer-focused. Since then, banks and regulators alike have been busy reviewing bank business models, and several committees have been installed to investigate the desired scale and scope of banking activities. This is the backdrop against which the SUERF conference was organized. The conference, hosted by the Duisenberg School of Finance, attracted over one hundred registered participants from ten different European countries.
The conference started off with the SUERF annual lecture by Lex Hoogduin and ended after a keynote address by Aerdt Houben, and a panel session. In addition, six invited speakers presented their work in two themed sessions, providing the audience with views from academia, central banks, and commercial banks.
SUERF President Urs Birchler welcomed the participants. As the conference took place at the Duisenberg School of Finance, he recounted his first meeting with Wim Duisenberg, who immediately struck him as frank and open/direct. Birchler expressed his hope that the conference will be characterized by the same spirit of directness and open discussion.
The 2013 SUERF Annual Lecture was given by Lex Hoogduin, Professor of monetary economics and financial institutions at the University of Amsterdam and former executive director at the Dutch Central Bank (DNB). In a thought-provoking speech, Hoogduin emphasized the importance of human psychology, and of economics as a moral science. Crises cannot be avoided, as the three root causes of crises are uncertainty, human creativity and evolutionary determined human psychology. These insights call for modesty in the ambition of what can be achieved to reduce instability without hampering progress. Hoogduin warned that trying to engineer culture and morals too much can easily be counter-productive and even lead to disaster. Turning to banks, Hoogduin discussed the core functions of banks and how these add value. He also presented his view on current policy measures and proposals. The full text of the Annual Lecture will appearin the forthcoming conference volume, and is available on the speaker's website.
The Q&A for the Annual Lecture was kick-started by Ernest Gnan, (Oesterreichische Nationalbank and SUERF), who also chaired the lecture. He asked whether the amount of risk is a given, or if can it be reduced/influenced by the institutional structure and policies. Hoogduin answered that it is important to distinguish between risk and uncertainty. The latter is a given. But risk is not a given, it depends on the decisions and preferences of individuals, and it can be influenced. A clear example is the limited liability set-up. Without limited liability, there will be a lot less risk-taking. At the same time, limited liability leads to moral hazard. Should we make bankers more accountable? Then we should ask ourselves if we are willing to throw away 400 years of limited liability.
A lively discussion ensued regarding the use of an (unweighted) leverage ratio compared to the current (risk-weighted) capital requirements. Both measures have pros and cons, and they should be seen as compliments, not substitutes. Norms are always arbitrary to some extent, as it is impossible to calculate the optimal norm. Norms are needed nevertheless, to give some guidance. Robert McCauley, from the Bank of International Settlements (BIS), noted that we should distinguish between the spirit of Basel II and how it was used in practice.
After the Annual Lecture, the morning continued with Session I: What impact does bank size have? The session, chaired by Frank Lierman (Belfius Bank), was comprised of presentations of two academic papers and one banking presentation.
The first academic presentation was by Michael Koetter, from the Frankfurt School of Finance and Management. He presented a paper written jointly with Jakob Bosma (University of Groningen), and Michael Wedow, (ECB) entitled: "Financial system ties: Implied connections and responses to bailouts". Too big to fail (TBTF) is not just about size, it is about connections: too connected to fail. This also includes connections with non-banks within the financial system. Many studies that look at linkages focus on interbank markets and neglect links with non-banks, and with other countries. The authors aim to identify the systemically important financial institutions (SIFI’s) worldwide. They do this by looking at bilateral connectivity measures and calculate co-crash probabilities. The policy relevance is that if one institution is bailed-out, we would like to know how markets respond to institutions connected to it, in other words: what are the bail-out effects in connected markets? The authors create joint series for 18,500 pairs of firms using use daily CDS spreads of 193 firms in 8 sectors. These are mostly EU and US banks, but also some insurance companies and investment trusts. The authors then look at the effect of 51 bail-out events, using a 50-day event window. Their results are remarkable. For instance, both connected and unconnected banks have negative cumulative abnormal returns (CAR) after a bank bail-out, and this effect is even stronger for connected banks. For insurance firms, the impact is negative for unconnected and positive for connected firms.
The authors conclude that bail-outs don't necessarily restore faith, and league tables have little early warning abilities.
During the Q&A, an independent researcher in the audience asked what the initial hypothesis on CAR was after a bail-out? Koetter answered that if a bail-out is to restore faith, one would expect no results for unconnected and positive results for connected firms.
Paola Bongini, (University of Milan Bicocca) asked whether the authors checked what happened in the case of Lehman, when no bail-out was done. Koetter replied that this was a good idea and the authors could indeed look at the Lehman case.
Michiel Bijlsma, (CPB) commented on the interpretation of the results. The method relies on correlations in tail of CDS spreads, but could there be other factors driving these correlations. For instance, the bail-out could be a wake-up call for some underlying shared problem.
The second academic presentation in this session was by Harry Huizinga (Tilburg University). He presented a paper written jointly with Ata Can Bertay (Tilburg University) and Asli Demirgüç-Kunt (World Bank) entitled: "Size and stability of big banks". The study investigates the relationship between size and probability of default. The authors distinguish between absolute bank size (measured by the log of total assets) and systemic bank size (ratio of total liabilities to GDP). The correlation between absolute and systemic size is only 0.327, so it is important to distinguish between these. The analysis is based on a large international sample of exchange listed banks over the years 1991-2011. Most banks (86%) are rather small in relation to GDP, but there is a tail of 9% of large banks, with liabilities exceeding 100% of GDP.
Looking at the data, the authors find that absolute and systemic sizes have a distinct impact on various variables, such as interest expense, returns, strategy and funding structure. For instance, banks with a large absolute size have a lower capitalization, higher fee income share, and higher non-deposit short-term funding share. Banks with a large systemic size also have lower capitalization, but they have a lower fee income share and a lower non-deposit short-term funding share. Systemically large banks also saw significantly lower deposit growth during the crisis, which points to a deposit outflow. Large banks, in both absolute and relative terms, tend to pay lower interest rates, but for the latter this is only true if they have an average capitalization rate. This suggests that large banks are too-big-to-fail (TBTF) with risks from government perspective.
During the Q&A, the distinct results for absolute versus systemic size were commented on. Bouke de Vries (Rabobank) suggested using a weighted sum of the GDP’s of the countries in which a bank is active as an alternative measure for systemic size. Huizinga replied that pooling GDP's had not been done so far, and could perhaps be done in the future. He also noted that other studies show that international banks pay a higher interest rate, because they have less access to national deposits. So in that sense, being international is costly.
"besides 'too-big-to-fail' we also have 'too-small-to-succeed'"
The last presentation in this session was by Teunis Brosens (ING Economics Department). The title of his presentation was: “The good, the bad and the big – is there still a place for big banks?”
Brosens discussed the various ways to measure bank size, and whether a bank’s size should be related to national or European GDP. He noted that besides 'too-big-to-fail' we also have 'too-small-to-succeed'. Using Bankscope data, he finds a U-shaped relationship between bank size and cost-to-income ratios. Cost-to-income declines with asset size, and only increase again when banks grow very big (> USD 750 bn in assets). Furthermore, businesses need the services of bigger banks. Banks smaller than USD 10 bn in total assets do not have the expertise to cater to all needs of small and medium-sized enterprises, while large international banks with balance sheets over USD 1,000 bn are not interested.
He argued that banks do not fail due to size or lack of liquidity, but due to asset concentration leading to a wholesale run and consequently the risk of a retail run. Of course, if a big bank fails the problems are bigger. We should therefore prevent and manage failure. Healthy banks should avoid concentration in sectors and markets. Recovery and resolution plans are important, and critical economic activities should be made separable. We also need more capital and other buffers, (such as bail-in debt), and clear seniority ranking of liabilities. Losses suffered during the crisis were at most 5-10% of risk-weighted assets (except for Anglo Irish), which can be absorbed by higher buffers. Brosens concluded by stating: 'Ask not how you can halve your bank, ask your bank how it can service you'.
During the Q&A, Stefan Kavan (Oesterreichische Nationalbank) asked whether holders of bail-in debt really expect to be bailed in. According to Brosens, they did not expect this in the past, but it is only a matter of time before markets and rating agencies fully realize it.
Ruud van de Ven (formerly Rabobank) referred to the risks of asset concentration, and pointed to the fact that Rabobank has a very high concentration in agriculture and in residential mortgages.
Brosens commented that concentration is a risk, and that simply because nothing has happened yet, it does not mean it is safe. Harry Huizinga added that this is true, but that Rabobank has a high capitalization and already issued bail-in debt. They have not been maximizing shareholder value but take other stakeholders into account, which is related to their corporate identity.
The afternoon started with Session II: Do different bank models add different value? This session, chaired by Patricia Jackson (Ernst & Young) combined one academic speaker, one central bank speaker and one speaker from a commercial bank.
The first speaker in the session was Clemens Kool (Utrecht University). He presented joint work with Nadejda Lazova and Mark Sanders, entitled: 'Bank credit growth and banking system characteristics'
Credit growth in the eurozone is very heterogeneous, both among countries and among banks in countries, despite the integration of financial systems. In some countries we saw excessive credit growth prior to the 2007 financial crisis. This heterogeneity cannot be explained by monetary policy, since the same ECB rates apply throughout the eurozone. The research question is: what drives credit growth in the euro area? What causes cross country and cross bank heterogeneity? And does the financial crisis affect the drivers of credit growth?
Since monetary policy is not the source of heterogeneity, the authors focus on the role of external (interbank) credit. From the literature, we know that net foreign debt drives internal credit growth. Also, the effect of market funding versus deposit funding depends on external conditions. The authors use a panel regression with 52 banks from 6 eurozone countries, during 8 years (2005-2012). A distinction is made between individual bank characteristics and system characteristics. Looking at the bank-specific variables, the authors find that bank size tends to be negatively related with credit growth, and liquidity is positively related. Interestingly, most bank-specific effects disappear after the crisis. Looking at banking systems, the authors find a positive relationship with capitalization and a negative relationship with the interbank ratio. For individual banks however, there was no significant relationship between these variables and credit growth.
The authors found no funding effects. But since the sample is small and the information set is limited, further research is needed.
During the Q&A, Michael Koetter asked how many of the banks in the sample were rescued, and whether it is possible to separate the demand and supply effects.
Kool answered that the known problem banks were removed from the sample. The authors do control for some demand side macro variables such as GDP growth, inflation, but one would need bank-firm level data to do this properly.
The second presentation in this session was by Frans de Weert (Head of Risk Management Supervision at DNB). His presentation was called 'Business model and strategy supervision'
In the past, supervision by the Dutch Central Bank (DNB) did not look at business models, but mainly checked if all the controls are in place. But the right rules do not guarantee the right outcome. In a changing environment, old controls need not prevent a new crisis. The existing Financial Supervision Act already contains various pointers for business model and strategy supervision.
Business model and strategy supervision is a way to become more forward-looking and to identify tomorrow’s risk. Understanding a bank’s business model helps to identify risks and discuss them at a strategic rather than operational level. Business model supervision is also an important link between macro and micro-prudential supervision. Questions that can be asked are:
- Is this business model fitting for the environment?
- Is the risk appetite contained in this business model in accordance with the amount of capital and liquidity?
- When do you conclude that a strategy is not sustainable?
If supervisors do not have the expertise to judge this, then external expertise can be brought in.
The presentation led to a lively debate during the Q&A. Urs Birchler commented that supervisors may be too ‘formalistic’ and they are bound by the rule of law. But when we have to be judged on soft factors, he would prefer the formalistic and objective over the 'esoteric'. Bouke de Vries noted that recovery and resolution plans already look at business models explicitly. De Weert answered that many problems arise due to the wrong strategic decisions. Such decisions can be due to soft factors, such as a dominant CEO or a lack of profits at home. He conceded that there is a high burden of proof on the supervisor.
"Many problems arise due to the wrong strategic decisions"
Frans De Weert
Clemens Kool agreed that formal checks alone may lead to inadvertent behavior, but warned that supervisors should not become bankers in deciding on business models and strategy. If the supervisor is partly responsible for the strategy, it becomes harder to supervise it.
The last speaker in this session was Bouke de Vries (Rabobank). His presentation was entitled: “Co-operative banks performance during the crisis – do different business models add different value?” De Vries first described the co-operative bank model. There are large differences in size, level of integration, market position and (inter)national orientation of cooperative banks. In general, co-operative banks are owned and controlled by members. Internal support mechanisms are in place. However, member influence only works if it is well-organized. This is especially relevant for individual members (as opposed to member banks). At Rabobank, member banks are all present at central delegates meetings. They must approve the executive board strategy and can fire board members. De Vries noted that good internal governance and balanced incentives are as important as external regulation and supervision. Regulation itself is often still oriented to the listed model, while co-operative banks have a 20% market share in Europe.
De Vries then presented the results of a study on the performance of cooperative banks during the years 2003-2010 in six countries (Austria, Finland, France, Germany, Italy and the Netherlands). The results show that cooperative banks on average have lower volatility in profits, higher capital ratios and larger distances to default (measured by the Z-score), and as such they were more resilient during the financial crisis. The ensuing economic crisis however, has a serious impact on all retail banks, including cooperative banks. De Vries concluded by saying that diversity of bank business models increases macro stability. However .
"Every model is only as successful as it is executed."
Bouke De Vries
During the Q&A, the risk-weighting of interbank loans was discussed. Interbank loans within the same bank group have a risk weight of 0. Nevertheless, decentralized groups of small banks can be systemically important, so one could argue that they should be under the same rules as large banks.
De Vries replied that this matter did not apply to Rabobank, as it has one consolidated balance sheet, but in other countries not all cooperative banks have consolidated accounts.
Clemens Kool is not in favor of fine-tuning regulation to each and every business type. In his view, we need more simplicity, not more fine-tuning.
The afternoon ended with Session III – What have we learnt about banks and their business models?
This session was comprised of a keynote address and a panel discussion. The keynote address was delivered by Aerdt Houben (Director Financial Stability Division DNB): The title of the address was: "Did we solve the too-big-to-fail problem?" Cutting directly to the chase, Houben said that the short answer is: "Almost!" And then added that we'll never fully solve it.
Houben discussed three ways of reducing the too-big-to-fail problem (TBTF). First of all, we should reduce the probability that problems arise. This is mainly done by improving capital and liquidity positions, as set out under Basel III and implemented in CRD/CRR IV. All in all, from 2017 onwards, core tier 1 capital (including the additional buffer for systemically important banks) will be 4-5 times higher than the 2% required under Basel II.
Second, when problems arise, we should reduce the bill to pay. This can be achieved through resolution plans. If economically critical activities can be separated from the other business, this will reduce the span of the public safety net and, by implication, the bill to be paid if trouble arrives.
Houben stressed that this is a difficult process: when cutting out non-critical parts of the bank, these activities may not be viable on their own. Third, losses should be shifted from taxpayers to bank creditors: bail-in instead of bail-out.
In the Netherlands, the Intervention Act allows the Minister of Finance to expropriate shareholders and certain other groups of financiers. This was done in the case of the nationalization of SNS-Reaal, which entailed a 100% write-off of shareholders and a full bail-in of subordinated debt. Another recent bail-in example was that of Cyprus. Further afield, in Europe, work is going on in the context of the Bank Recovery and Resolution Directive (BRRD), towards introducing ‘bail-in debt’. From 2018 onwards, this instrument will allow for the losses from a failed bank to be borne by the bank's creditors without the state acquiring ownership. Such 'bail-in debt' may, when difficulties mount, be converted into share capital or written off outright. Under the current draft BRRD, a loss hierarchy is introduced. First, losses up to 8% of total assets are absorbed by shareholders and holders of other instruments. Then, losses up to 5% of total assets will be borne by the European Resolution Fund. Only after that, the ESM (European public backstop) or national backstops are needed, which means that the taxpayer is only hit after 13% of the balance sheet is bailed-in. Looking back at European bank losses in the years 2007-2012, the losses averaged some 3% of the balance sheet. Only the losses of Anglo Irish Bank exceeded the 13% threshold. So while the need for state support cannot be precluded even after implementation of the BRRD, the probability will be strongly reduced.
Both the expropriation instrument and the bail-in debt may be used if the supervisory authority considers the institution no longer viable. This discretionary power in the hands of the supervisor creates uncertainty for investors. In order to reduce that uncertainty, some institutions have issued contingent convertible bonds (coco bonds). These can be converted into equity capital or be written off entirely if the capital position of a bank falls below a predetermined level. Thus whereas coco bonds have the same effect as expropriation and bail-in debt, they offer investors more certainty in advance regarding the conditions that will cause them to be converted or written off.
During a brief Q&A, Harald Benink asked how credible the BRRD plans are, considering the level of discretion for national authorities. Judging from market prices, it is not entirely credible yet.
Urs Birchler asked if it is really better to rescue a failed bank with healthy banks’ money. Houben argued that we need contractual bail-in bonds (up to a specified level) rather than statutory bail-in. Then it is clear to investors. An additional benefit is that senior unsecured debt becomes very safe.
The afternoon ended with a panel discussion. Before the discussion, the panelists each presented their views on bank business models.
Alicia Sanchis (Banco Santander) stressed the need for banks to refocus on clients and their needs, on risk management, on understandable contracts, and on their relationship with markets. In terms of risk management, project viability must be put center stage, rather than focus on collateral. The transformation functions remain at the core of banks, but given pressure on the banking sector and the funding mix, banks should not stretch the maturity transformation too much. Markets and other forms of (co-)financing could be developed more, and the role of banks becomes that of an intermediary providing expertise. Regulation should allow banks to pursue this re-focusing; legal uncertainty stemming from new rules and regulations should be reduced, and a level playing field with institutions not falling under the same degree of supervision should be put center stage.
Andreas Bley (BVR Association of German Cooperative Banks) stressed the need for diversity of bank business models. The cooperative model in general and the German cooperative model in particular deserve special attention. In Germany, cooperative banks serve 20-25% of the market, and they weathered the financial crisis without state aid. The cooperative bank system in Germany consists of about 1100 entities that are legally independent from each other, but work together as a network. For example, they have central banks and specialized institutions to provide services an independent bank cannot provide. The median size of cooperative banks is about EUR 300m in total assets. According to Bley, a credit crunch in the aftermath of the financial crisis has been averted very much due to the presence of the cooperative banks. Finally, he warned that regulation may not always be adequate for cooperative banks. For instance, how can cooperatives meet the required level of bail-inable assets by issuing debt instruments such as coco’s if these small banks never went to the capital market before?
Harald Benink (Tilburg University) insisted on the need for credible back stops, which among other things require member states to have intervention and resolution laws in place. He suggested already introducing bail-in in the upcoming Asset Quality Review (AQR). This is especially important if the amount of hidden losses still out there in the European banking system turns out to be high. Benink would not be surprised if losses yet to be uncovered would exceed EUR 500 bn. If capital shortage cannot be financed in financial markets or by taxpayers, then a bail-in is needed. A legal framework is needed, such as the Intervention Act in the Netherlands. Benink believes that the ECB should demand that countries should have a legal mandate before the AQR is finished. Without these contracts, the ECB should refuse to take these banks under its supervision. Unfortunately, the ECB itself looks somewhat divided on the question of whether private or public money should be available as a back stop.
"Banks will become even bigger."
Michiel Bijlsma (CPB) discussed how banks are organized, and the long term drivers affecting bank scope and scale. Though much in vogue right now, regulation is not the key driver. Technology is more important. Technology will reduce transaction costs, information asymmetries and economies of scope, while it will increase economies of scale. As a result, banks will become even bigger. They will also become more specialized and the role of international financial markets in the financial system will become more important. Therefore the key issues for policy are:
How to cope with ever bigger banks? How to deal with the national and international presence of banks? How to deal with free riding on information collection in international financial markets? What tasks should be organized nationally/internationally, for example payment systems?
Bijlsma stressed the information problem that was at the heart of the financial crisis. People were buying complex products, believing that others had checked them out. There is an underproduction of information on risk, because for trading purposes it is easier and cheaper to use information gathered by others.
A large part of the Panel Q&A revolved around bail-in and bank size. Stefan Kavan asked what happens if the buyer of bail-inable debt cannot bear the associated losses. It seems the problem of interconnectedness has not been solved.
Harald Benink answered that we have to make sure that portfolios of bail-in debt are diversified across investors, and we should also focus on convertible debt, i.e. going concern bail-inable, in case of recovery. Clemens Kool commented that a diversified portfolio can hardly be guaranteed, and Alicia Sanchis added that if pension funds buy bail-in debt, they are unlikely to take the full losses without the government stepping in.
Bouke de Vries noted that contractual bail-in is applied to a smaller category of assets than if you let bail-in apply to all asset categories. He wondered if this will result in a higher price for contractual bail-in. If so, it may almost become equity, and then it may not be possible to issue contractual bail-in debt (coco's) for all banks. Michiel Bijlsma thinks a smaller asset base could mean that the burden might be shifted to the taxpayer after all. He also believes that banks should hold more equity, and bail-in may not be fully credible as a substitute of equity. Dirk Schoenmaker thinks that a smaller asset base will provide more clarity, compared to the current situation where the entire balance sheet is available for bail-in.
A legal expert in the audience commented on the short presentation by Harald Benink, saying that it is not practically possible to have national laws implemented in less than one year. It is better to arrange an intervention framework within European law.
The panelists also commented on Michiel Bijlsma's prediction that banks will get bigger. Andreas Bley said that for a large share of the (cooperative) banking sector, proximity is much more important than size for SME and retail banking, despite the long term technology trend described by Michiel Bijlsma.
Alicia Sanchis argued that size is not the only or ultimate variable to distinguish systemic importance. Banks of the same size may have different risk profiles, and it is possible to have bigger banks without an increase in risk. Harald Benink agreed that banks may indeed become bigger, but with a good system of contingent capital, they will be much more subjected to market discipline.
Dirk Schoenmaker closed the panel discussion and the conference by remarking that the title of the conference has perhaps been formulated to facilitate a more positive approach to the value that banks may generate for society, though most of the sessions and discussion have been focusing on how to limit the negative effects of (big) banks in conducting their business. In the discussion, "Society" seems to have been narrowed to "tax payers."
2 July 2014
SUERF/Central Bank of Iceland Conference
Post-Crisis Recovery and the Reconstruction of the Financial Sector
Six years after the onset of the financial crisis, economic recovery is uneven and in many cases lackluster. In a number of crisis countries unemployment has reached dramatic levels. Government finances have sharply deteriorated in many countries and will take a long time to restore towards sound positions. Although many reforms of banking and financial system regulation and supervision have been undertaken key issues remain unsolved regarding the structure of the banking system, cross-border banking activity and post-crisis business models. Fundamentally, the too-big-to-fail problem and the issue of big banks in small countries are still to be satisfactorily resolved. Big questions remain to be answered regarding the “new normal” and post-crisis potential output growth, as well as how we can build a sustainable financial system that serves the real economy. Against this background, this conference brings together top academics, senior policy makers and financial industry leaders to take stock of these issues and discuss strategies to promote post-crisis economic recovery and the reconstruction of the financial sector. Possible stumbling blocks as well as linkages between real and financial recovery will be given special attention.
The conference wll be held in the conference room of the Banque de France at 31 rue Croix des Petits Champs, 75001, Paris. The closest métro stations are Louvre-Rivoli (Line 1), Palais-Royal Musée du Louvre (lines 1 and 7) and Bourse (line 3). RER B services run from Roissy Charles de Gaulles airport and Orly airport to Châtelet-Les-Halles (changing at Antony from Orly) frequently.
The workshop will be held in the Oktogon (on the first floor) of the premises of Bank Austria UniCredit AG, Schottengasse 6-8, 1010 Vienna. The location is located approx. 100m from the U-Bahn (line U2 stop Schottentor) and bus and tram lines.