eleni d dendrinou - louri : assessing the performance and regulation of the greek banking system speech by ms eleni d dendrinou - louri, deputy governor of the bank of greece, at the conference : “ the future of banking in greece : redefining the business of financial services to drive growth and expansion in 2009 and beyond ”, athens, 21 january 2010. * * * ladies and gentlemen, i would like to thank “ the banker ” and “ financial times global events ” for inviting me to participate in this conference and giving me the opportunity to address such a distinguished audience. in this intervention, i will present an overview of the greek banking sector and outline the major challenges and opportunities that greek banks face. i will finish by providing a perspective about the new regulatory framework changes proposed by the basel committee. during the current decade, the greek banking system has enjoyed a favourable macroeconomic environment, in both greece and in south eastern europe ( see ). this situation has contributed to healthy profitability, underpinned by rapid loan - portfolio growth, relatively wide net interest margins, high - yield lending to see borrowers and broadly resilient fee - income generation. these factors, in conjunction with the negligible exposure of greek banks to us subprime assets and other complex structured products, considerably mitigated the financial fallout from the first wave of the recent global financial crisis, the worst since the great depression in the 1930s. however, the greek economy and other markets where greek banks operate, notably see, have not been spared by the second round effects of the crisis. the liquidity squeeze and the asset - quality deterioration tested the greek banking system, which fared rather well in the course of the previous year ( 9months to be exact ). more precisely : greek banks ’ capital adequacy remained at satisfactory levels and was gradually strengthened ; profitability declined but remained at overall satisfactory levels ; credit risk increased and so did loan loss charges, with signs of moderation in the 3rd quarter of the year ; enhanced by ecb funding, the greek government ’ s liquidity support package, and the increase in deposit base, the liquidity position of greek banks remained satisfactory. in more detail : capital in the first 9 months of 2009, the capital adequacy of greek commercial banks and their groups was substantially enhanced. this development was attributed mainly to a considerable increase in prudential own funds, while a marginal rise was recorded in risk

##ed extremely high budgetary costs, and even higher overall economic costs – crippling in the case of some countries. the recovery and resolution proposal ( relating to national crisis resolution, and not specifically to a union - wide, or euro area - wide mechanism ) would ensure that in future national authorities will have the means to intervene decisively before problems occur and early on in the process if they do. they could also ensure that the cost of restructuring and resolving failing banks falls on the owners and creditors and not on taxpayers. the december summit asked the council to agree this dossier by end march and for trilogies to be completed before june. this is a very tight schedule indeed. the commission proposal dates from june 2012. the presidency has conducted intensive work teasing out and clarifying the issues. principally they are : • the balance of power between home and host authorities in group scenarios and the role of the eba in mediation • financing and funding arrangements • bail - in ; its scope and possible exclusions • the use of deposit guarantee schemes in bail - in • the transposition date for the bail - in tool • possible inclusion of public intervention tools in the directive discussions to date within the council have been technical and slow moving and it is only recently that a compromise text covering all the elements has been tabled. we now have a tool box which is understood and which can work but member states have not addressed the cost of the compromise needed to achieve a workable regime. now that the issues have been clarified it is time for the member states to begin to take decisions. related to this is the deposit guarantee scheme directive which aims to significantly enhance depositors ’ confidence by introducing a higher level of coverage, faster payout and more credible funding of the schemes. however, member states are unwilling to restart negotiations of this proposal until the bank resolution package is nearer conclusion – in particular its treatment of funding. the european council asked for work on this dossier to be accelerated so that it can be adopted in line with bank recovery and resolution. clearly the recovery and resolution proposal and the deposit guarantee scheme will be pressure points for the remainder of the irish presidency. outside of the banking union priority we are focusing on certain markets and consumer files and i will deal briefly with them. bis central bankers ’ speeches mifid ii / mifir this proposal aims to make financial markets more efficient, resilient and transparent and to respond to the challenges of new trading venues, products and technological developments. following an intensive round