Financial System Structures Seen from Outside the US Nicolas Véron Senior Fellow, Bruegel (Brussels) Visiting Fellow, Peterson Institute for International Economics (Washington) The Brookings Institution Washington DC, December 4, 2012 1
An I ncreasingly Multipolar W orld… Aggregate Market Value of World's Largest Listed Banks (%) 60% 50% 40% Asian Banks 30% US Banks European Banks 20% Rest of World 10% 0% 12/2000 12/2001 12/2002 12/2003 12/2004 12/2005 12/2006 12/2007 12/2008 12/2009 12/2010 12/2011 Sample: banks in FT Global 500 rankings. Source: FT, author’s calculations 2
Non-US Financial System s Are More Bank- based… Typically 7 0 -7 5 % bank-based ( in Europe) vs 2 5 -3 0 % in the US – Even more so in many large emerging economies Com paratively underdeveloped channels – Equity financing (public and private) – Specialized credit institutions: leasing, consumer credit, etc. – Mid-sized corporate bond issuance (high-yield) – Loan securitization – Mezzanine funds and other credit funds 3
…Non-US Banks Are Com paratively Larger… World’s largest banks by assets Top 3 banks’ assets to GDP Bank Country 2011 Assets $m Deutsche Bank Germany 2,800,133 US MUFG Japan 2,664,171 HSBC UK 2,555,579 Japan BNP Paribas France 2,542,880 ICBC China 2,456,295 Credit Agricole France 2,431,932 UK Barclays UK 2,417,369 RBS UK 2,329,767 Sweden JP Morgan Chase US 2,265,792 Bank of America US 2,136,578 Spain Mizuho Japan 2,012,909 CCB China 1,949,219 Netherlands Bank of China China 1,877,520 Citigroup US 1,873,878 Italy AgBank China 1,853,319 SMFG Japan 1,741,213 Germany Santander Spain 1,619,349 Societe Generale France 1,528,577 UBS Switzerland 1,508,303 France Lloyds Banking Group UK 1,500,561 BPCE France 1,472,969 0 200 400 600 Wells Fargo US 1,313,867 1990 2006 2009 ING Bank Netherlands 1,243,651 Source: The Banker Database, Bank for International Settlements 4
…And Often Unlisted… Unlisted European banks in Global Top 1 0 0 by assets – BPCE (# 21), Rabobank (# 26), Credit Mutuel (# 32), DZ Bank (# 47), LBBW (# 51), Bayern LB (# 58), Nationwide (# 74) – None in the US Listed banks represent less than 4 0 % of Germ an banking sector Variations in governance, transparency – e.g. German Landesbanken, Spanish savings banks 5
100% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0% Mitsubishi UFJ (JP) Mizuho (JP) Sample: 50 largest banks by assets; source: annual reports Share of total revenue outside home country, 2010 Patterns… Banks Have Diverse I nternationalization Sumitomo Mitsui (JP) Bank of China (CN) Resona Holdings (JP) Bank of Communications (CN) ICBC (CN) China Construction Bank (CN) Norinchukin Bank (JP) Agricultural Bank of China (CN) ASIA (Weighted Avg) Citigroup (US) Goldman Sachs (US) Morgan Stanley (US) JP Morgan Chase (US) Bank of America (US) Wells Fargo (US) N. AMERICA (Weighted Avg) Standard Chartered (UK) Nordea (SE) HSBC (UK) Credit Suisse (CH) Deutsche Bank (DE) ING Bank (NL) Santander (ES) BNP Paribas (FR) UniCredit (IT) BBVA (ES) Dexia (BE) UBS (CH) Barclays (UK) Societe Generale (FR) Credit Agricole (FR) Danske Bank (DK) Royal Bank of Scotland (UK) Rabobank (NL) Commerzbank (DE) Intesa Sanpaolo (IT) DZ BANK (DE) ABN AMRO (NL) Credit Mutuel (FR) BPCE (FR) Lloyds Banking Group (UK) LBBW (DE) EUROPE (Weighted Avg) Scotiabank (CA) Royal Bank of Canada (CA) Toronto-Dominion Bank (CA) ANZ (AU) 6 National Australia Bank (AU) Commonwealth Bank (AU) Westpac (AU) Banco do Brasil (BR) ANZ-CA (Weighted Avg)
…Leading to Different National Exposures to I nternational Risks… Domestic banks’ foreign assets relative to GDP 250% 200% 150% 1996 100% 2001 2006 50% 2011 0% France Germany Italy Netherlands Spain UK Japan US Source: BIS locational banking statistics 7
Outside the US, Leading I nvestm ent Banks Feel More “Foreign”… Bloomberg Equity Underwriter League Tables, H1 2012 Global US EMEA Asia-Pac 1 JP Morgan Citi Deutsche Bank UBS 2 Morgan Stanley Morgan Stanley Goldman Sachs Morgan Stanley 3 Citi JP Morgan JP Morgan JP Morgan 4 BofA Merrill Lynch BofA Merrill Lynch Credit Suisse Citi 5 Goldman Sachs Barclays BofA Merrill Lynch BofA Merrill Lynch 6 Deutsche Bank Goldman Sachs UBS Goldman Sachs 7 Credit Suisse Credit Suisse Morgan Stanley Deutsche Bank 8 UBS Deutsche Bank Societe Generale Nomura 9 Barclays UBS Citi CITIC 10 Nomura Wells Fargo BNP Paribas CICC 8
…And So Do Other Key Market Participants… Nationality of Global Leader, Big 5/ 4 Audit Networks Andersen Deloitte E&Y KPMG PwC 1989-1997 L. Weinbach US 89-99 M. Cook US 87-91 R. Goerdeler DE 91-93 J. Butler US 94-01 P. Laskawy US 93-95 H. Havermann DE 94-98 (PW) J. Schiro US 95-97 J. Madonna US 94-98 (C&L) N. Moore US 1997-2000 R. Grafton US 97-99 C. Sharman UK 2001-2002 J. Berardino US 99-03 J. Copeland US 99-02 S. Butler US 98-02 J. Schiro US 2002-2003 A. Cardoso FR 03-07 W. Parrett US 01-13 J. Turley US 02-07 M. Rake UK 02-09 S. DiPiazza US 07-11 J. Quigley US 07-11 T. Flynn US 09- D. Nally US 11- B. Salzberg US 13- M. Weinberger US 11- M. Andrew AU Source: public reports, author’s research 9
…And Also Com m ercial Banks, At Least I n Som e Sm aller Countries… 100% 90% 80% 70% 60% 50% 2005 40% 2008 30% 20% 2011 10% 0% Austria Belgium Denmark France Germany Greece Ireland Italy Netherlands Poland Romania Spain Sweden UK Japan US Czech Rep. Assets of foreign-owned banks as % of total domestic banking assets. Source: Bankscope 1 0
I n Europe, Special Resolution Regim es Are Often Nonexistent or Untested… UK – Banking Act 2009 DE – Restructuring Act 2010 FR – Under discussion IT – Consolidated Law on Finance 1998 (‘‘Draghi Law’’) ES – Decree-Law on Bank Restructuring and Credit Institution Equity Reinforcement 2009 (FROB), modified 2011 NL – Under discussion IE – Central Bank and Credit Institutions (Resolution) Act 2011 BE – Financial Crisis Law 2010 DK – Danish Financial Stability Act 2008 AT – n.a. SE – Government Support to Credit Institutions Act 2008 N.B. Countries ranked by decreasing size of banking assets (ECB data) 1 1
…and “TBTF” Can Be Really “NBATFNMHS”* … Definition of failure US experience since 2 0 0 8 – Bear Stearns ($400bn), Fannie Mae ($880bn), Freddie Mac ($790bn), AIG ($1trn)… – but also Lehman ($691bn), WaMu ($330bn), CIT ($80bn), MF Global ($40bn)… EU experience since 2 0 0 7 … – Starting from IKB (€50bn) in late July 2007… – Exceptions DSB Bank (€8bn), Amagerbanken (€4bn), Bradford & Bingley (£52bn – but losses only on sub debt) …unless the sovereign is itself unable to cope – Iceland 2008, Ireland 2010, Spain 2012 – Changes ahead * No Bank Allowed To Fail, No Matter How Small 1 2
Som e Policy I m plications Cross-border aspects less central in US – Vs Europe, smaller countries US far ahead in special resolution regim es – Role of FSB / Basel Committee (FSB key attributes) – European “Banking Union” Regulation of bank structure – Vickers in UK context – Next steps unclear (including in US) – No one-size-fits-all approach? 1 3
Risk of Global Fragm entation? Cross-Border Capital Flows as % of Global GDP 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: Lane/ Milesi-Ferretti Database, estimate on 2011 1 4
Thank You For Your Attention Nicolas Véron + 32 473 815 372 (Europe) / + 1 202 550 0614 (U.S.) n.veron@bruegel.org / nveron@piie.com Bruegel: www.bruegel.org Peterson Institute: www.piie.com 1 5
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