Yannis Stournaras: "European Banking Supervision: The first eighteen
months"
Welcome address by Mr Yannis Stournaras, Governor of the Bank of Greece, at the
presentation of the book by Dirk Schoenmaker and Nicolas Veron: "European Banking
Supervision: The first eighteen months", Athens, 14 July 2016.
* * *
We are really pleased and honored to have you here for the presentation of the study related
to the first eighteen months of the European Banking Supervision. I strongly believe your work
brings valuable insight in an era involving new policy regimes that have brought forward
profound change to the European banking landscape.
I also feel the work presented here today is essential as it provides an excellent overview
related to SSM's operations as well as the response to several challenges. Needless to say if
we were having this discussion a couple of years ago it would have been hard to anticipate
that a major organization of this size would be fully operational at such an early stage and truly
competent in dealing with major issues in the euro-area.
It is equally important to understand that these challenges have not changed much over the
past few years: asset quality deterioration, market segmentation and business model viability
are still issues to be tackled by monetary policy and supervisory decision makers in our days.
It is worthwhile examining a persistent characteristic during these years, indicative of these
considerations: shares of European banks have been trading at a discount to tangible book
value, while those of the largest US banks trade at a premium to book value. A comparison of
capital-adequacy ratios can no longer explain this difference in valuation multiples, as capital
ratios for euro area banks have risen from about 8 percent in 2008 to about 14 percent today.
On the contrary, they are indicative of a European banking sector undergoing a transformation
that demands a comprehensive and radical adjustment of the core business model of
operation.
I feel that, eight years after the financial crisis, we are still witnessing a transition phase. Banks
are definitely stronger than one decade ago, capital adequacy ratios do demonstrate that, but
they are still adjusting their business models to a post-crisis world. At the same time, they also
have to address legacy issues with problems of non-performing exposures adding to the
overall assessment of investment considerations.
The euro-area financial crisis, as originated in the end of the previous decade, provided the
perhaps most serious challenge to the stability of the European Union; it is now well understood
that a monetary union is not viable in the absence of a banking union. More recently, with the
recovery in the euro area still fragile, new geopolitical tensions have led to an unprecedented
refugee crisis and increased uncertainty. Finally, matters such as the consequences of Brexit,
different approaches among member states regarding banking union, and the slow progress
in establishing a single European deposit insurance scheme, have been hindering further
progress in securing the financial system architecture needed to enhance stability.
SSM has been the catalyst for the Banking Union of the EU. It provides a framework for
common rules and policies across the euro area banking sectors; it enhances single
supervisory treatment over segmented national practices. But it also has to cope with
increased uncertainty in two areas: the possibility of major changes in the future regulatory
framework and the way that new regulation is going to be applied.