WRITTEN QUESTION E-3062/02

by Cristiana Muscardini (UEN) to the Commission

(25 October 2002)

Subject: Global banking crisis

In the second week of October the leading stock market indices plummeted to their lowest levels for six years. The fall in the financial markets, the increase in company bankruptcies and insolvencies in the foreign debt of many countries have had a devastating effect on bank balance sheets. The total loss in the German banking sector over the past two and a half years has reached alarming levels. Commerzbank shares have collapsed from EUR 44 in 2000 to EUR 5,3 on 8 October. The bank's capitalisation has fallen from EUR 24 billion to 3 billion. Other shares in the DAX-30 have suffered huge losses: Bayerische Hypo Vereinsbank 84 %, Deutsche Bank 64 %, Allianz/Dresdner Bank 83 %, Münchener Rück 75 %, MLP 96 %. The combined market capitalisation of these six banks fell from EUR 300 to EUR 71 billion between 2000 and the start of October 2002. The ECB's chief economist has admitted that on the stock market front the banking situation is critical. Company bankruptcies have reached new records in the USA, Japan and Germany. Defaults on company debentures reached USD 140 billion in the first nine months of this year. 28 countries are unable to meet their debt servicing obligations. In the USA and Europe investment banks will write off more than USD 130 billion. The largest American bank, which boasts a balance sheet of USD 713 billion has been downgraded by the rating agencies. The market capitalisation of Morgan Chase has fallen from USD 105 billion to USD 33 billion (down 69 %). Charles Schwab has lost 82 %, Morgan Stanley 72 %, Merrill Lynch 60 %, Goldman Sachs 54 %, Citigroup 50 %, Lehman Brothers 48 % and Bearn Stern 45 %. Even greater risks are emerging in terms of insolvencies. The huge US real estate bubble involves USD 5 trillion in risk bonds. The derivatives bubble, with operations amounting to USD 26 trillion at Morgan Chase and USD 11 trillion at Deutsche Bank, could be another bomb waiting to go off.

1. Can the Commission confirm these data?

2. If so, does it not consider that it should suggest convening an international conference to remedy the devastating effects of the speculative bubble and to establish rules to prevent a huge gulf emerging between the financial economy and the real economy?

3. What initiatives does the Commission intend to take with regard to this vast loss in wealth and to safeguard the interests of investors?

Answer given by Mr Solbes Mira on behalf of the Commission

(28 November 2002)

The Commission cannot directly confirm the data cited in the Honourable Member's written question, but it certainly shares her concerns on the developments in the banking sector. However, it should also be considered that the banking sector entered the current period of cyclical weakness with relatively strong balance sheets and profitability.

The Commission does not consider convening an international conference to remedy the effects of the speculative bubble, nor does it plan initiatives directly aiming at stabilising the wealth of investors. Such initiatives are not within the institutional competence of the Commission and would in any case have a limited impact. Conversely, the Commission would like to stress that the rapid and complete implementation of all the measures in the financial services action plan, the initiatives in the area of corporate governance, as well as the rationalisation of the framework for Community-level regulation and supervision, would go a long way in raising the level of investor protection, strengthening the stability of the financial system, and increasing its efficiency, to the benefit of investor and companies alike.