edgar meister : eu banking sector stability statement delivered by mr edgar meister, member of the board of the deutsche bundesbank and chairman of the bsc, frankfurt, 24 february 2003. * * * in my capacity as chairman of the banking supervision committee ( bsc ), i am very pleased to present to you the committee ’ s report on eu banking sector stability, which has been prepared with the assistance of the working group on macro - prudential analysis, chaired by jan brockmeijer from the dutch central bank. the report summarises the outcome of one of the main lines of the committee ’ s activity, namely our regular monitoring of banking sector stability in europe. this is an activity that we have developed over the past few years through the cooperation of the eu national central banks, the eu banking supervisors and the ecb. we have now reached a stage where we felt we could share our findings with a wider audience. the stability analysis is based on a wide range of quantitative and qualitative information drawn from national supervisory data sources and the ecb, as well as on an exchange of information among the member organisations of the bsc, the eu central banks and supervisory authorities. the bsc has already achieved substantial progress in terms of harmonising consolidated bank profitability and balance sheet data - something which is of pivotal importance for macro - prudential analyses. i am confident that today ’ s presentation will be the starting point for what will develop into a good tradition. the main purpose of the document is to provide an overview - from an eu - wide perspective - of the resilience of the eu banking sector and of the potential threats to its stability. the report also places into the public domain new eu - level information on bank profitability and solvency developments. i believe that the report - and, more generally, the monitoring activity of the committee reflected in the report - will bring two main benefits. first, the eu - wide scope of our analysis complements the similar analysis carried out by the competent authorities at the national level with reference to domestic banking systems. second, the close cooperation among central banks and supervisory authorities produces substantive value added in terms of forming an assessment of the relevant issues. let me now turn to the main findings of the review. we find that banks ’ profitability weakened in 2001 and showed a further weakening in the first half of 2002. the downward trend in profitability has come about as a result of two adverse developments in the eu banks ’ operating environment. first

to eu banks stability. in this context, we find that the risk outlook is crucially dependent on the timing and speed of the recovery in the eu economy. however, the outlook for growth in the eu also hinges on global recovery. developments in the us and possible military action against iraq are key external factors in terms of potential risks. adverse macroeconomic developments would impact quite strongly on eu banks ’ profits owing to a significant increase in provisioning needs and a reduction in income from traditional retail banking. nevertheless, we remain confident that the eu banking sector will continue to display a notable capacity to withstand any further shocks in the economic and financial market environment. given this situation, efficient banking supervision is of paramount importance. given the challenges posed to eu banks and potential cross - border implications, coordination among supervisors and central banks in the eu is essential. in particular, the bsc is taking due account of this necessity and providing a common forum. in this connection, it is worth mentioning that stability analyses and the monitoring of structural developments in the eu banking sectors form the core of the bsc ’ s work. thank you very much for your attention.