COMMISSION STAFF WORKING DOCUMENT CHARTS Accompanying the document Report from the Commission to the European Parliament and the Council Second Report on Effects of Directives 2006/48/EC and 2006/49/EC on the Economic Cycle
Date: 2012-07-17
Institutions: European Commission
Subjects: application of EU law, bank, economic analysis, economic growth, euro area, financial control

EUROPEAN COMMISSION 

Brussels, 17.7.2012  
SWD(2012) 218 final 

COMMISSION STAFF WORKING DOCUMENT 

CHARTS  

Accompanying the document 

Report from the Commission to the European Parliament and the Council 

Second Report on Effects of Directives 2006/48/EC and 2006/49/EC on the Economic 
Cycle 

{COM(2012) 400 final} 

EN 

   EN 

 
 
 
  
 
The  following  charts  from  the  ECB  report  illustrate  the  development  of  corporate  credit 
ratings and GDP growth in the euro zone (EU 17) and in the European Union (EU27), which 
show a correlation of the two over time. 

Chart 1: Credit ratings and GDP growth in EU17 

Chart 2: Credit ratings and GDP growth in EU27 

GDP growth 17 countries

GDP growth 27 countries

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GDP growth for the Euro a rea (17 countri es ) - LHS

Sha re of upgrades  in % of a l l ra ti ng cha nges  (movi ng

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GDP growth for the Euro a rea  (27 countries ) - LHS

Sha re of upgra des  i n % of a ll ra ting cha nges  (moving

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Although the data sample is much shorter, similar tendencies are observable for securitisation 
rating changes. 

Chart 3: Credit Ratings for Securitisation Products 

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2011q1

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Share of upgrades in % of all rating changes

GDP growth 27 Countries

The cyclicality evident in these graphs implies that capital requirements which are linked to 
external ratings would follow a clear cyclical pattern at the level of individual exposures. This 
could contribute to pro-cyclicality of credit and business cycles, where rating downgrades for 
certain assets may induce a relevant de-leveraging process. However, the cyclicality of overall 
MRC  for  SA  banks  may  be  mitigated  by  dynamic  adjustments  to  banks’  portfolio 
composition.  

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chart  4  and  Chart  5  summarise  qualitative  survey  results  from  the  Eurosystem’s  quarterly 
Bank Lending Survey (BLS). 

Chart 4: Regulatory impact on banks’ risk weighted assets and capital 

Impact of Basel III and other regulatory requirements on banks’ risk-weighted 
assets and capital position  (net percentages of banks) 

July 2011 BLS

Jan 2012 BLS

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Risk-weighted
assets, of which

Capital position,
of which

Risk-weighted
assets, of which

Capital position,
of which

Risk-weighted
assets, of which

Capital position,
of which

2011H1

2011H2

2012H1

Note:  The  net  percentages  are  defined  as  the  difference  between  the  sum  of  the 
percentages for “increase considerably” and “increase somewhat” and the sum of the 
percentages  for  “decreased  somewhat”  and  “decreased  considerably".  Replies  for 
2011H1 refer to the July 2011 BLS; July 2011 BLS replies for 2011H2 correspond to 
expectation; replies for 2012H1 refer to January 2012 expectations. 

Chart 5: Regulatory impact on banks’ credit standards 

Contribution of Basel III and other regulatory requirements on the tightening of 
credit standards (net percentages of banks) 

Jul 2011 BLS

Jan 2012 BLS

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Note:  The  net  percentages  are  defined  as  the  difference  between  the  sum  of  the 
percentages  for  contributing  “considerably”  or  “somewhat”  to  tightening  credit 
standards  and  the  sum  of  the  percentages  for  contributing  “somewhat”  and 
“considerably" to an easing of credit standards. 

3 

 
 
 
 
 
Chart  4  shows  shedding  of  risk  weighted  assets,  weighted  toward  riskier  loans,  and  an 
improvement  in  banks'  capital  position,  in  the  last  six  months  significantly  due  to  share 
issuance. This suggests that exogenous non-cyclical factors have impacted notably on banks' 
capital position.  

Chart  5  shows  that  for  the  first  half  of  2012  banks  expect  a  further  increase  in  the  net 
tightening of credit standards due to regulatory pressures. Compared with the second half of 
2011, the exacerbated effects on bank lending policy are anticipated to primarily affect large 
firms and the financing of house purchase.  

The  ECB  notes  that  several  empirical  studies  have  found  that  changes  in  credit  standards 
significantly  impact  on  lending  with  a  lag  of  2-3  quarters.1  As  Chart  5  suggests  anticipated 
regulatory  requirements  have  led  to  tightened  standards,  this  could  be  another  link  between 
the MCR and the volume of loans provided to the non-financial sector.  

Chart 6: Tightening in credit standards on loans to 
enterprises and banks’ capital position as 
contributing factor (net percentages) 

Chart 7: Factors contributing to tightening in credit 
standards on loans to enterprises (net percentages) 

Credit standards

banks' capital position

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Sources:  Eurosystem’s  Bank  Lending  Survey  (BLS).  – 
Notes:  The  net  percentage  refers  to  the  difference 
between  the  sum  of  the  percentages  for  “tightened 
considerably” and “tightened somewhat” and the sum 
of  the  percentages  for  “eased  somewhat”  and  “eased 
considerably”.  The  net  percentages  for  the  questions 
related  to  the  factors  are  defined  as  the  difference 
between  the  percentage  of  banks  reporting  that  the 
given  factor  contributed  to  a  tightening  and  to  an 
easing. 

Perception of risk

Competition

Bank balance sheet constraints

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-20

2003

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2006

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2012

the 

“risk  on 

collateral  demanded”; 

Sources:  Eurosystem’s  Bank  lending  survey  and  ECB 
calculations.  –  Notes:  The  “perception-of-risk”  factor 
refers  to  the  “industry  and  firm-specific  outlook”,  the 
“expectations  regarding  general  economic  activity”, 
and 
the 
“competition”  factor  refers  to  competition  from  “other 
banks”, 
financing” 
and 
respectively;  the  “balance-sheet-constraints”  factor 
refers  to  “costs  related  to  banks  capital  position”, 
“banks’ ability to access market financing” and “banks’ 
liquidity  position”.  Net  percentages  reported  for  three 
groups  of  contributing  factors  are  simple  averages  of 
underlying factors listed above. 

“non-banks” 

“market 

Chart  6  shows  the  link  between  banks'  capital  position  and  credit  standards  on  loans  to 
enterprises.  Chart  7  shows  that  during  the  financial  crisis  banks’  balance  sheet  constraints2 
have gained relative importance, while perception of risk is the main driver behind tightened 
standards.  

1  
Kok Sørensen (2010). For US-based evidence, see e.g. Lown and Morgan (2006) and Berger and Udell (2004). 

For euro area-based evidence see e.g. De Bondt et al. (2010), Ciccarelli et al. (2010) and Hempell and 

2   
to banks capital position', 'banks’ ability to access market financing' and 'banks’ liquidity position'. 

The term 'banks’ balance sheet constraints' captures various factors in the BLS, including 'costs related 

4 

 
 
 
 
                                                            
Table 1: EU banking assets 

2009 (EUR millions)

% of total
Home banks

Total assets

MS name
Netherlands
Sweden
Spain
Germany
France
Italy
Austria
Denmark
Greece
Portugal
Cyprus
Malta
Ireland
Belgium
Finland
Luxembourg
Slovenia
Hungary
Poland
Latvia
Romania
Lithuania
Bulgaria
Czech Republic
Estonia
Slovakia
United Kingdom
MU16
CEE10
EU27
Source: ECB paper "EU Banking Structures" Sept 2010 

2,217,008
934,534
3,433,283
7,423,967
7,155,460
3,691,965
1,036,597
1,104,536
490,134
520,188
139,372
41,242
1,323,584
1,155,506
387,630
797,460
53,404
126,160
274,212
29,924
86,386
26,180
37,950
160,219
21,340
54,473
9,420,998
29,921,272
870,248
42,143,710

94.7%
93.1%
89.8%
89.2%
89.2%
86.6%
80.6%
80.1%
78.9%
76.9%
62.8%
62.0%
50.1%
39.3%
32.9%
6.0%
70.9%
43.7%
32.4%
31.2%
24.0%
16.6%
16.3%
10.3%
5.1%
3.9%
48.5%
81.4%
27.8%
73.5%

Non-home banks
5.3%
6.9%
10.2%
10.8%
10.8%
13.4%
19.4%
19.9%
21.1%
23.1%
37.2%
38.0%
49.9%
60.7%
67.1%
94.0%
29.1%
56.3%
67.6%
68.8%
76.0%
83.4%
83.7%
89.7%
94.9%
96.1%
51.5%
18.6%
72.2%
26.5%   

Across  the  EU  27,  non-home  bank  assets  account  for  just  over  a  quarter  of  the  total.  This 
quarter is mostly EU subsidiaries (12%) and EU branches (7.7%) with third country branch 
and  subsidiary  assets  being  mostly  located  in  the  UK.  In  the  UK,  24.1%  of  assets  are  from 
third  country  branches  and  subsidiaries,  which  would  include  e.g.  US  firms  operating  in 
London, and 27.4% from the EU.  

5 

 
 
 
Chart 8: Composition of EU 27 banking assets 

The  situation  is  reversed  when  we  consider  only  the  group  of  ten  new  central  and  eastern 
Europe  MS.  Non-home  bank  assets  account  for  about  three-quarters  (72%)  of  the  total 
banking  assets  located  in  the  CEE  10,  while  they  contribute  2.1%  of  total  EU  27  banking 
assets. In LT, BU, CZ, EE and SK, over 80% of banking assets are non-home. The CEE are 
clearly vulnerable to repatriation of capital to banks' home MS, which might occur if capital 
requirements  are  raised  by  home  supervisors.  The  single  rule  book  with  'constrained 
discretion' for home supervisors to set higher capital requirements on their firms is therefore a 
key  measure  to  mitigate  pro-cyclical  effects  of  asymmetric  deleveraging  in  "host"  countries 
such as the CEE 10. 

Chart 9: Composition of CEE 10 banking assets 

Nevertheless,  there  are  factors  that  may  diminish  the  potential  impact  of  euro  area  banks' 
deleveraging  on  Eastern  Europe.  First,  only  a  third  of  all  euro  area  banks'  lending  to  the 
region is accounted for by cross-border claims. The rest is in the form of locally incorporated 
operations, which tend to be much more stable. Second, banks located in the euro area hold 
only  about  a  tenth  of  their  total  international  claims  on  emerging  Europe  in  the  form  of 

6 

 
 
 
 
 
tradable  debt  instruments.  As  a  result,  it  would  be  relatively  difficult  for  them  to  quickly 
dispose of most of their claims on the region without incurring high costs.  

Chart 10: Macroeconomic Assessment Group model study results 

The  chart  (taken  from  page  2  of  the  MAG  2010  report)  shows  the  estimated  effects  of  a  1 
percentage point increase in target capital ratio. 

The  MAG  exercise  calculated  the  impact  of  a  1  percentage  point  increase  in  target  capital 
ratio on the basis of a two-year and a four-year transition period. While the magnitude of the 
overall impact is similar in these two cases, as illustrated in the Chart above, the time pattern 
of  the  GDP  effects  is  different.  Assuming  that  banks  adjust  their  capital  ratio  within  a  year 
(rather than through two consecutive years), the impact on GDP may be more pronounced in 
the short run.  

7 

 
 
 
 
 
Chart 11: Total CCB capital add-on in RWA in the European Union 

The sum of all CCB RWA capital add-on would have added up to a total sum of circa 290bn 
euro for all countries in the EU in the peak of the CCB requirement in 2007. This would have 
provided  European  banks  with  a  sizeable  cushion  of  additional  Tier  1  capital  to  absorb  a 
shock  like  the  Lehman  collapse,  assuming  a  total  release  of  the  CCBs  in  all  EU  countries. 
This  would  most  probably  have  reduced  the  need  for  government  intervention  and  the 
involvement of taxpayer money in bank recapitalisation and, ultimately, would have mitigated 
the de-leveraging pressure on banks as well. 

8