1. European Banking Sector in a period of Global Financial and Economic Crisis Viktorija Proskurovska Adviser, Economic and Monetary Affairs and Relations with Associates of the European Banking Federation 10 th Inter-Balkan Forum of Banking Associations 16 October 2009 - Sarajevo, Bosnia & Herzegovina

2. www.ebf-fbe.eu2 Significance of the crisis Evaporation of liquidity in the inter-banking market; Bankruptcies of financial giants, causing systemic risk; Loss of public trust in the financial sector; Deterioration in general economic conditions; Increase of the government share in the private sector (causing unlevel playing field). Global estimated loss: USD 3.4 trillion (about 2.3 trillion). EU GDP might fall by 4% in 2009, US GDP may decrease 2.6% in 2009.

3. Reaction of banks Reflect on their weaknesses; Reduce their costs and improve returns; Clean-up their balance sheets; Adapt their business strategies. www.ebf-fbe.eu3

4. Reaction of the ECB and national governments More liquidity and capital: Euro-area Governments committed about 35% of GDP to financial sector support measures; Eurosystems balance sheet had almost doubled. Negative consequence: Increased public ownership in the EU banking sector. www.ebf-fbe.eu4

5. Regulatory response by the European Commission EU Commission is working on the body of legislation on: supervisory architecture; capital requirements; accounting principles; remuneration policies; hedge funds, UCITS, etc. Aim: to ensure the right incentives, reduce gold-plating, and strengthen risk management and prudential oversight. www.ebf-fbe.eu5

6. The EURO Benefits of euro membership: –confidence in the currency (avoid sharp devaluation during crisis); –ECB measures to enhance market liquidity enabled euro area countries to avoid a credit squeeze. Challenges: –Differences in the pricing of euro member countries debt and credit default insurance have widened. www.ebf-fbe.eu6

7. Conclusion Current EU-level priorities are: –Need for effective government exit strategies; –ECB to continue facilitating the working of financial markets; –EU authorities to finalise their proposal for the Regulation on banking supervision; –banks to continue their operations while reforming internal procedures. www.ebf-fbe.eu7

8. Thank you! For contacts: Viktorija Proskurovska Adviser in Economic and Monetary Affairs, Associates European Banking Federation v.proskurovska@ebf-fbe.eu www.ebf-fbe.eu 8