EFSIR 2018 Joint conference of the EC and ECB on European Financial Integration - John Berrigan - European Central Bank
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EFSIR 2018
Joint conference of the EC and ECB on
European Financial Integration
Frankfurt, 3 May 2018
John Berrigan
Deputy Director General
DG Financial Stability, Financial Services and Capital Markets Union
Overall Assessment of
Economic and Financial Developments
European Financial Stability and Integration Review
EU activity gained momentum
Real GDP growth, quater-on-quarter
% %
4 8 - Economy activity strengthened
with all Member States growing.
- Accommodative monetary
3 7 policy, low inflation and low
interest rates supported this
economic growth.
2 6
- Risks:
• demand for real estate
1 5 • market participants confidence in
central banks phasing out of bond
purchasing programmes
• …
0 4
2014 2015 2016 2017
euro area (lhs) EU (lhs) US (lhs) China (rhs)
Source: Eurostat 3Search for yield in low-interest environment
10-year sovereign bond yields
- Investors in search for yield ventured
4.5
%
into new bond segments and bought
bonds of lower credit quality.
3.5 - Euro-area corporate bond and
US
sovereign bond spreads narrowed.
2.5 - Risks:
PT
IT
• Bond and equity valuations
1.5 ES • Demand for real estate
• Increase in risk premia
DE
0.5 • …
-0.5
2016 2017 2018
ES US DE IT PT
Source: Bloomberg
4International capital flows stabilized
with FDI becoming relatively more important
Extra-EU net financial account - International capital flows stabilised
EUR billion at lower levels than before the crisis
- Relative proportion of FDI increased,
600
400 which is conducive for ensuring
financial stability
200
0 Proportion of FDI in EU liabilities
35%
-200
-400
30%
-600
FDI in extra-EU liabilities
25%
-800
2009 2010 2011 2012 2013 2014 2015 2016 2017
FDI in intra-EU liabilities
Financial account, net Direct Investment, net 20%
Portfolio Investment, net Other Investment, net
Source: Eurostat and own calculations Source: Eurostat
15% 5
2008 2009 2010 2011 2012 2013 2014 2015 2016Increased reliance of firms on market funding
NFC debt-funding structure, euro Equity issue by NFCs, euro area
area
EUR billion %
22% 4% 15 2.4
20% 3%
10 2.0
18% 1%
5 1.6
16% 0%
14% -1% 0 1.2
12% -3%
-5 0.8
10% -4%
2007 2009 2011 2013 2015 2017
-10 0.4
Share of market funding in total outstanding debt (lhs) 2015 2016 2017
Total debt funding y-o-y growth (rhs) Net issuance (flows) - lhs Net issuance (yoy growth) - rhs
Source: ECB Source: ECB 6More resilient banks in search of higher profitability
Banks’ return on equity - Banks were more resilient:
• Restructuring of balance sheets
45%
• Decrease in market and credit risk
40% • Increase in stable funding
35% • Decline in NPL stock
30% - Slightly higher profitability
25% despite low-interest rates and
tight interest rate margins
20%
15% EU banks’ average NPL ratio
7%
10%
5%
6%
0%
LU
NL
EE
LT
SE
LV
DK
IE
CZ
MT
DE
SK
GB
BE
AT
CY
IT
PT
ES
FI
HR
BG
SI
RO
GR
HU
FR
PL
Q3-2017 EU average
5%
Source: EBA
Source: ECB
4%
Q4-2014 Q2-2015 Q4-2015 Q2-2016 Q4-2016 Q2-2017Development of local capital markets
Crypto-token market developments:
what are initial coin offerings all about?
European Financial Stability and Integration ReviewPotential for local capital market development within the CMU
Size of capital markets and economic Financial market access and economic
development development
Source: ECB
Source: ECB and IMF 9Crypto-tokens on the rise, but also a viable
alternative source of finance?
Crypto-tokens: Total market capitalization - Strong increase in market
capitalisation,
- Initial coin offerings:
Start-up finance that comes at
a much earlier stage than IPOs
• Benchmarks are equity
crowdfunding and venture
capital
• Regulatory objectives of
financial services legislation
must be fully respected
• Could serve as the basis for the
development of a new funding
vehicle for innovative start-ups
and scale-ups
Source: coinmarketcap.com
10EFSIR 2018
Q&A
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