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Post-Crisis Growth and Integration in Europe

Post-Crisis Growth and Integration in Europe

Catching-up Strategies in CESEE Economies

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

Against the backdrop of the financial crisis that unfolded in 2008, this book deals with policy challenges going forward, focusing in particular on the ongoing catching-up process in Central, Eastern and South-Eastern European countries.

Chapter 18: The Need for an Enhanced Role of Local Supervisors and Shareholder Oversight

Andrzej Stopczynski

Subjects: economics and finance, financial economics and regulation


Andrzej Stopczyński1 INTRODUCTION The integration of financial markets in Europe is fuelling economic growth as it gives banks extended access to wholesale funding and enables them to transfer capital and liquidity through fast channels. Yet this very positive impact can turn into a source of enormous risk if the abovementioned phenomena get out of control. Lessons learned from the last crisis have changed the minds of supervisors and forced them to look beyond oversight structures that remain limited to single banks and bank groups. NEW SOURCES OF RISK One of the most visible effects of financial integration is the rapid development of securities markets. The growing market for corporate bonds gave corporates the option of meeting their funding needs by issuing bonds. As this narrowed banks’ possibilities of extending loans to large companies, they were forced to seek other sources of revenues. The financial liberalization of the 1980s and technological progress made it possible for banks to shift towards mortgage lending (Green and Wachter, 2007). However, mortgage loans were financed not only by households’ deposits but also by wholesale funding, which produced a gap between the rate of growth in loans and the rate of growth in deposits. On top of that, globalization enabled the massive use of external wholesale financing, and thus helped turn wholesale funding into one of the factors behind the global banking crisis (Hume and Sentence, 2009). 207 M2733 - NOWOTNY TEXT.indd 207 19/09/2011 16:34 208 Post-crisis growth and integration in Europe REFOCUSING BANKING...

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