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R I S K A S S E S S M E N T O F T H E E U R O P E A N B A N K I N G S Y S T E M — J U N E 2 0 1 4
13
You see that the most important
risks for the European banking
system from the emerging-
market risks include
(please indicate yes to two risks):
1. Decreasing revenue from
emerging markets
2. Losses due to financial
markets and currencies of
emerging markets dropping
3. Deteriorating asset quality in
emerging markets
4. Withdrawal of foreign
currency funding
5. Emerging markets increasing
sovereign risk
6. Risk of global economic slowdown
0 % 10 % 20 % 30 % 40 % 50 %
You see the emerging-market risk as an
important risk for your institution in the next
6 months?
If yes, the channels through which risk will
materialise are (please indicate yes to 2 risks):
a. Decreasing revenue from emerging markets
b. Losses due to financial markets and
currencies of emerging markets dropping
c. Deteriorating asset quality in emerging
markets
d. Withdrawal of foreign currency funding
e. Emerging markets increasing sovereign risk
f. Risk of global economic slowdown.
Agree
Somewhat agree
Somewhat disagree
Disagree
Agree
0 % 10 % 20 % 30 % 40 % 50 %
Figure 4: Emerging-market risk (
source
: RAQ Banks and RAQ market analysts)
The risks of a too-prolonged period of
low inflation deserve further attention
Forward-looking macroeconomic indica-
tors show signs that the world economy im-
proved in the second half of 2013 and growth
is expected to accelerate for most advanced
economies outside the EU. The outlook for
EU real GDP development has been raised
slightly since autumn 2013 and, in 2014, is ex-
pected to increase by 1.5 % (the increase in
the euro area is expected to be 1.2 %). While
some uncertainty has receded after a 2 year
contraction, growth remains modest and
fragile as the crisis’ legacy of excessive debt,
financial fragmentation and economic uncer-
tainty still exists and threatens to remain a
dragging on growth.
The outlook for inflation in the EU has been
lowered substantially in the last few months
and is expected to decrease to 1.2 % in 2014
(the decrease in the euro area is expected to
be 1 %, standing at 0.7 % in April, up from 0.5 %
in March 2014, the slowest pace in more than
4 years). The potential risks could result from
a demand or supply shock, weakening the still
fragile economic growth relative to the current
forecasts and will significantly influence the
levels of monetary accommodation. Subdued
pressures are expected to maintain inflation
at low levels and inflation expectations have
been dropping implying that, in fact, there has
been an increase in real interest rates since
autumn 2013, with negative effects on growth
and on the real debt burden.
2.2 Regulatory
developments
The regulatory reform agenda has notched up
some significant achievements with the adop-
tion of a slew of landmark reforms and the
main bulk of reform is now through. Never-
theless, there is still some way to go to make
EU banks safer and financial markets more
transparent.
In January 2014, the European Commission
proposed a regulation on the reform of the
structure of the EU banking system, built on the
recommendations of the ‘Liikanen report’ (
4
).
The proposal completes the financial regu-
latory reforms undertaken over the last
few years by setting out rules on structural
changes for ‘too-big-to-fail’ banks. In order
to ensure the effective and consistent super-
vision and the development of the single rule
book in banking, the EBA would be consulted
by competent authorities when taking certain
decisions as set out in this proposal and would
be required to assess the potential impact of
such decisions on the financial stability of the
EU and the functioning of the internal mar-
ket. In addition, the EBA would be required to
prepare draft regulatory measures and im-
plementing technical standards, and submit
reports to the Commission.
(
4
)
High-Level Expert Group on reforming the structure of the
EU banking sector
, Chaired by Erkki Liikanen, 2 October 2012.