Making use of the financial services survey in Commission policy analysis Presentation by Staffan LINDÉN DG ECFIN, Directorate of Financial Markets and Stability BCS Workshop 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

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

Demand over the next three months

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

Overall competitive position

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