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 - John Berrigan - European Central Bank
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
EFSIR 2018 Joint conference of the EC and ECB on European Financial Integration - John Berrigan - European Central Bank
Overall Assessment of
Economic and Financial Developments

               European Financial Stability and Integration Review
EFSIR 2018 Joint conference of the EC and ECB on European Financial Integration - John Berrigan - European Central Bank
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                                                                                      3
Search 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
                                                                                                 4
International 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 2016
Increased 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                                                     6
More 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 Q2-2017
Development of local capital markets

Crypto-token market developments:
what are initial coin offerings all about?

                  European Financial Stability and Integration Review
Potential 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                  9
Crypto-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:
                                               ƒ   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

                                                                              10
EFSIR 2018

    Q&A

    European Financial Stability and Integration Review
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