conference on european economic integration

Conference on European

Economic integration

Katia D’Hulster

Senior Financial Sector Specialist

Question 1

What does the World Bank do to make

CESEE more resilient?

Financial Sector Advisory Center (FinSAC)

Objective:

“to help ECA financial regulators strengthen financial stability”

How?

• Tailored Technical Assistance

• Analytical output

• Regional conferences and workshops

Geographic focus

Authorities from

EU candidates

and potential

candidates

EU member

states

EU neighboring

countries

Central Asian

countries

Thematic focus

Four pillars

Macro prudential

Micro prudential

Recovery &

Resolution

Consumer Protection

and Financial Literary

Question 2

What remains to be done to remove

financial sector legacies that result

from the downturn of the financial cycle

since 2008?

Pillar 1: Macro prudential framework

Institutional

Policy tools

Capacity building

Crisis preparedness

Pillar 2: Micro-prudential framework

NPL reduction

CRD IV

Information sharing

NPL ratios in SEE: high and/or rising,

with the possible exception of Kosovo Bank Nonperforming Loans to Total Loans, %

0

5

10

15

20

25

30

Q1

-07

Q2

-07

Q3

-07

Q4

-07

Q1

-08

Q2

-08

Q3

-08

Q4

-08

Q1

-09

Q2

-09

Q3

-09

Q4

-09

Q1

-10

Q2

-10

Q3

-10

Q4

-10

Q1

-11

Q2

-11

Q3

-11

Q4

-11

Q1

-12

Q2

-12

Q3

-12

Q4

-12

Q1

-13

Albania

Bosnia

Bulgaria

Croatia

Kosovo

Macedonia, FYR

Montenegro

Romania

Serbia

Source: IMF FSI and national authorities NPL definitions not directly comparable

NPL RESOLUTION -- ROAD MAP

Pillar 3: Recovery and Resolution

Underfunded deposit insurance regimes

Legal uncertainty remains

Untested bank resolution frameworks

Pillar 4: Consumer Protection & Financial Literacy

Legal and regulatory frameworks

Institutional arrangements

Information disclosure

Dispute resolution

Financial education

Question 3

What are your thoughts on the policy

responses across the EU and their

implications for CESEE?

Overall

• Slow process, regular slippage in timelines

• “Third countries”

• Tensions between home and host interests

remain

• Many authorities will remain in charge of

banking supervision

• Asset quality review

Banking Union Sequencing of integration

Instruments and powers

Responsibility

Territorial approaches as a result of sequencing of integration

Single Rule Book

Single supervisory mechanism

Single Resolution mechanism and fund

Single deposit protection

Fragmentation

Key challenges

• Macro-prudential frameworks not yet fully functioning

• Mechanisms for reducing the stock and flow of NPLs are not yet fully in place

• Loan classification and provisioning requirements will eventually need to become more standardized

• Impact of CRD IV to be estimated and buffers to be implemented

• Bank resolution authority and deposit insurance schemes are in process of being modernized