Role of Deposit Insurance in Bank Resolution Framework – Lessons from the Financial Crisis Session III – Lessons from Financial Crisis for Bank Resolution: US and European Experience Jerzy Pruski – President of the Bank Guarantee Fund Jodhpur, INDIA, 14 th November 2011

Jodhpur 13-16th November Market experience regarding resolution

Jodhpur 13-16th November USA Europe 3 Market experiences 1933 Systemic organization of the small bank market First experiences regarding resolution of big banks Financial crisis 2008 Lack of any institutional solutions First institutional solutions come into existence Gaining limited experience Asia 1997 Lack of any institutional solutions Gaining significant experience regarding resolution of big banks

Jodhpur 13-16th November Jurisdiction of FDIC State banks Mainly under FDIC supervision A large number of small entities active on local markets 73% of banks in the USA accounting for 30% of total assets within the sector FDIC mitigates the risk of instability in ¾ of the banking sector due to the number of banks

Jodhpur 13-16th November banks Total assets in bn $ 5 Applying acquired experience to bigger banks 5 36,6% GDP 1,0% PKB USA Największe banki stanowe (pod nadzorem FDIC) Washington Mutual in terms of asset volume was comparable to the biggest banks on the market The example of Washington Mutual demonstrates the capacity to apply the experience gained from dealing with small banks to measures directed towards significant market players Resolution średnie aktywa 0,9 mld $ FDIC possesses both competence and tools with respect to resolution The WM case demonstrated the capacity of using these tools with respect to a big financial institution Significance of practical capabilities of FDIC Position of Washington Mutual

Jodhpur 13-16th November Risks connected with the structure of the banking sector European examples

Jodhpur 13-16th November Need for resolution in the EU In Europe there is a need to create tools regulating fractionalized sectors and mitigating risk introduced by big banks Resolution tools needed due to the large number of small banks There is a need for solutions that neutralize the risk of market destabilization by big banks 2010

Jodhpur 13-16th November Europe – challenges regarding the gradual development of resolution >500 banks 1)European bank systems are highly diversified 2)In many countries there is strong motivation to create resolution for small banks – it enables a gradual building up of competencies regarding resolution (similar to FDIC) 3)Differences between sectors create significant barriers in harmonization of solutions Big banks Number of banks – 2010 Total assets (bn EUR) per bank – 2009 Limited motivation to create resolution for small banks Presence of small banks Limited motivation to create resolution for small banks In Europe there are barriers to the gradual development of resolution based on tools that can be used with respect to small banks

Jodhpur 13-16th November Cross-border problems European examples

Jodhpur 13-16th November The SIFI problem is particularly pronounced in Europe The importance of the SIFI problem USA UK France Japan China Germany Italy Switzerland Spain Netherlands Australia Belgium Canada Sweden EUR bn Europe Northern America Asia Other Source: "Forbes Global 2000" rank, consisting of 40 largest world banks %50%100%150%200%250%300%350%400% Switzerland UK France Belgium Netherlands Sweden Australia Spain Italy Germany Japan Canada USA China Assets/GDP Europe Northern America Asia Other 40 largest World banks by assetsLargest banks by assets to GDP

Jodhpur 13-16th November Risk of transferring country risk to the banking sector Italy – correlation of bank CDS and country CDSItaly – changes to bank CDS and country CDS over time Bank risk is connected with country risk

Jodhpur 13-16th November Europe – the financial aspect of cross-border problems The picture of cross-border problems on the example of the need for European bank recapitalization

Jodhpur 13-16th November