Making use of the financial services survey in Commission

policy analysis

Presentation by Staffan LINDÉNDG ECFIN, Directorate of Financial Markets and Stability

BCS Workshop15-16 November 2012, Brussels

Outline

• Overview of Unit E1's line of work• How we make use of the results from the

Financial Services Sector Survey – a few examples– Regular market monitoring– Assessing bank support measures (FSSS vs. BLS)– Financial factors explaining intra-euro area external

imbalances

Unit E1: Financial markets and infrastructure

• Primarily a policy unit providing analysis and advice

• Economic analysis of major financial markets and of financial stability within the EU– Market structures and infrastructures– Market trends, but no forecasting– Integration across EU financial markets– Potential risks to stability and efficiency of financial

markets

1. Regular market monitoring

• Internal publication: Credit Market Pulse• Overview of the latest market developments

– Real economy (incl. Economic Sentiment Indicator)– Credit markets, equity markets, money markets, FX,

banking sector, euro system, etc.– Policy developments

• Chart book (incl. ESI and FSI)

The chart book

The chart book

2. Assessing bank support measures

• Purpose: assess the impact of financial bank support measures over time and across EU Member States in three respects– banking sector stability– functioning of interbank markets– lending to the real economy

• Data was messed up by interventions• Search for benchmarks – survey data one option

Demand over the past three months

-50

-40

-30

-20

-10

0

10

20

30

-30

-20

-10

0

10

20

30

40

50

2006 2007 2008 2009 2010 2011 2012

FSSS - past demand FSI BLS - past demand

Demand over the next three months

-30

-20

-10

0

10

20

30

40

-30

-20

-10

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011 2012

FSSS - expected demand FSI BLS - expected demand

Financial Services Sector Survey vs. Bank Lending Survey

• Questions and focus are different, but some overlap exists, e.g. past and expected demand

• Correlations are in general high (0.85 for demand questions)

• Expected demand is leading past demand in BLS

• FSSS and BLS are contemporaneous• FSSS is conducted on a monthly basis, BLS on

a quarterly

3. Financial factors explaining intra-euro area external imbalances

• Context: Macroeconomic Imbalance Procedure– Response to the crisis with broad scope, but

imbalances are often reflected in current account deficits or surpluses

– Q: does persistently large surpluses raise risks similar to deficits, and if it is in the self-interest of the surplus countries to reduce their surpluses

• Input: explore to what extent developments in the in the financial sector led to cross-border imbalances in the real sector

Bank behaviour: low profitability and regulatory structures spurring risk

taking• Low profitability and weak earnings prospects in

core business fields are thought to induce risk taking (e.g. Landesbanken)

• Lenient regulation may induce higher risk-taking

World Bank/OECD financial regulation indicators 2006

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Indicator for FinancialRegulatory Framework

Capital Adequacy Entry into Banking andOwnership

Authority ofSupervision

Score

Spain average of 3 deficit countries (EL, IE, PT)average of 4 surplus countries (BE, NL, AT, FI) Germany

Overall competitive position

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2007-H2 2008-H1 2008-H2

DE

ES

FR

IT

NL

UK

Balance

Reflections

• The FSSS is a useful survey and delivers insights for policy oriented work

• It would be useful to have country breakdown as most work inevitably becomes Member State oriented

• For time series monitoring the FSSS faces competition from market based indicators