Financial market supervision and stability Seminar to mark the 20th anniversary of the Czech and Slovak Central Banks Marek Ličák

2  Integrated supervision within the NBS  Financial stability in Slovakia  Challenges posed by the predominantly foreign owned banking system and banking union Agenda

3 Financial market supervision in transition countries  Banking supervision in almost all transition countries had a prominent position in comparison with institutions responsible for other sectors (dominant share of banks on an overall financial sector)  Banking supervision was mostly carried out by their central banks  Central banks were established with strong guarantees of their independence; guarantee also for banking supervision to be shielded from undue political influence  Supervision of other sectors was mostly established within separated institution or within Ministry of Finance  Scandinavian countries were the first that established integrated supervision (Norway 1986, Denmark 1988, Sweden 1991)  growth of „bancassurance“ business model, financial innovation, economy of scale, synergies

 Banking system supervised and regulated by the NBS from 1993  Insurance sector, capital market– supervised by the Ministry of finance between  Financial market authority was established in 2000  Integrated supervision and regulation of banking sector, insurance, capital market and pension system within the NBS from Financial market supervision in Slovakia

5 Integrated supervision in Slovakia   Reasons for integration   Economy of scale, synergies – very important mainly for smaller countries   Very strong reputation of the NBS   Growing importance of other sectors (mainly pension funds)   View after seven years of integration   Synergies in many areas (human resources, analytical work, knowledge and so on)   One culture of supervision in Slovakia

Financial stability in Slovakia

7   1993 – 2001   Banks mostly state owned or owned by domestic capital, low penetration of banking   „childhood or teenage period“   2002 – 2008   Inflow of foreign capital, significant change in banking culture, high growth of credit   „period of maturing“     Experience with global financial crisis – GDP fall, confidence crisis,   „baptism by fire“     Very stable banking sector in SR, debt crisis, slow economic growth, SSM   „period of new challenges“

8 Financial stability in Slovakia Comparison of SK banking sector with EU banking sector Slovakia Median EU Upper and lower quartile EU

9 Challenges posed by predominantly foreign owned banks   Many positive experience with foreign capital (new banking culture)   Situation has changed – subsidiaries in Slovakia are in most cases in a better position than their banking group   Possible negative effects – transformation of subsidiaries into branches, deleveraging, outflow of capital, liquidity, cost cutting   Probability of negative spillovers depends on attractiveness of subsidiaries for parents Position of largest SK banks within their banking groups

10 Challanges posed by Challenges posed by the banking union   Single supervisory mechanism is a big challenge for the NBS   Transfer of power for the microprudential supervision on the ECB   The NBS will still keep macroprudential powers   Close cooperation with the ECB; the need to understand local conditions

11 Thank you for your attention Marek Ličák Director of Macroprudential Policy Department National Bank of Slovakia