elisa ferreira : resolution and early supervisory intervention topics supporting address by ms elisa ferreira, vice - governor of the bank of portugal, on the panel discussion of " resolution and early supervisory intervention " at the " bcbs - fsi high - level meeting for europe on banking supervision ", lisbon, 18 september 2018. * * * accompanying slides of the speech. the firm, cohesive european commitment to banking union helped counter financial fragmentation but its incomplete setup seriously jeopardises its key benefits. as the ssm was put in place and the srm started working, the political will to build the third pillar – a european deposit insurance scheme ( edis ) – and complete the overall architecture waned. new, bigger political hurdles continue to emerge with policymakers stuck in the risk - reduction vs. risk - sharing debate, losing sight of the final objectives. today, banking union means that supervisory and resolution decisions are mostly european, whilst the ultimate guarantor of financial stability remains national, with limited tools to act. the meseberg declaration and last june ’ s euro summit, by falling short again of proposing further risk - sharing while adding additional layers of risk - reduction measures, lead us to ponder whether the costs of attaining additional risk - sharing are worth the risks to financial stability that such measures may trigger. an unstable balance has emerged from the lack of political will to complete the banking union preventing us from fully reaping the benefits of economic integration. europe needs to have concrete plans going forward, and must address pressing questions on what we need to adjust to guarantee financial stability. 1. treatment of cross - border banking groups without edis, as banks are to a large extent, still “ national in death ”, instead of discussing the adoption of waivers, a specific regime needs to be developed to address member states ’ concerns over the risks of potential failures of cross - border banking groups. member states need tools to address financial stability issues arising from locally systemic undertakings. this involves : the rethinking of the single point of entry ( spe ) / multiple point of entry ( mpe ) resolution model ; the choice between subsidiaries or branches, together with the supervisory powers of host national competent authorities ( ncas ) ; and openly debating the contentious topic of ring - fencing measures. the transformation of subsidiaries into branches has emerged as an answer to this debate – however that implies, at least, that : national resolution authorities are involved in the definition of resolution plans and actions when local undertakings are

audience will remember well, we had already negotiated adjustment programmes with the imf in 1977 – 1978 and 1983. the root cause of the accumulated imbalances was then essentially the same : excessive domestic demand growth in relation to the productive capacity of the economy, leading to external debt accumulation. 3 / 6 bis central bankers'speeches however, given that we were not part of a monetary union and had full monetary autonomy in the 1970s and 1980s, the symptoms of the crisis and the policy prescriptions produced at the time show some important differences when compared to the most recent crisis episode. in a context of monetary sovereignty, the imbalances translated into currency depreciation, international reserves depletion and high and rising inflation rates. with monetary policy fully available at national level, financial repression was the name of the game. the policy prescription consisted of interest rate increases, credit growth targets, capital controls and the devaluation of the escudo to contain domestic demand and restore export competitiveness. as a result of the adjustment strategy, the real value of wages, pensions and savings declined sharply and wealth was transferred from creditors to debtors. money illusion blurred the perception of the adjustment costs and of the fundamentally unbalanced burden - sharing. also, as nominal variables were targeted and competitiveness was restored in the short term, structural supply - side imbalances and long - term competitiveness failed to be properly addressed. as a consequence, the country ’ s competitiveness remained fragile and anchored in low wages. in the first decade of the 2000s, being part of a monetary union facilitated a longer and larger accumulation of imbalances. nominal stability, low interest rates and ample credit availability created the illusion that credit constraints had disappeared and masked persistent losses of competitiveness for more than a decade. the symptoms of the emerging crisis no longer included persistent exchange rate pressure, reserve depletion or high and rising inflation, but rather a sudden unwillingness on the part of international investors to finance the portuguese economy. without the monetary instrument, money illusion was no longer there and the policy prescription had to be different. as a result, the need for deleveraging and structural supply - side reforms became inescapable. the financial assistance programme the execution of the economic and financial assistance programme set out in 2011 brought about noteworthy progress : the budget deficit declined significantly, which created the conditions for the current downward trend of sovereign debt ; the private sector initiated a deleveraging process ; and the banking sector became more robust,