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IMPLICATIONS FOR
REGULATION AND POLICY
Levy Institute Conference
Athens 8-9 November
Dimitri Vayanos
Outline
of key facts.
The credit cycle in an institutionally weak economy.
A grim credit outlook.
Policies for the short/medium run.
Credit Boom
Banks private-sector loans (households and non-financial
corporations) to GDP:
3.00
2.50
2.00
2003
1.50
2008
Ratio 2008/2003
1.00
0.50
0.00
AU
BE
FI
FR
GE
GR
IR
IT
LU
NE
PO
Source: ECB
Greece:
SP
All
Households/NFCs 2008
Households 2008/2003
1.50
NFCs 2008/2003
1.00
0.50
0.00
AU
BE
FI
FR
GE
GR
IR
IT
LU
NE
PO
SP
All
Source: ECB
Private-sector loans:
Fast growth in loans to households and SMEs.
New borrowers with limited credit histories.
Government bonds:
Only Greek bonds lack of diversification across the EZ.
Holdings increased in the run-up to the crisis.
Lack of Diversification
Domestic government bonds held by banks as % of EZ
government bond holdings:
Credit to Government
Greek banks holdings of Greek government bonds and loans to
the Greek government:
60,000
50,000
40,000
Bonds
30,000
Loans
20,000
10,000
0
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Source: BoG.
Source: BoG, Report on the recapitalization and restructuring of the Greek banking sector, 12/2012.
ATEbank, Postbank)
1.71
control:
Credit Crunch
NPLs
NPLs, expressed as % of banks private-sector loans in
12/2008:
45
40
35
30
GR
25
IR
20
IT
PO
15
SP
10
5
0
2008
2009
2010
2011
2012
2013
Deleveraging
Banks private-sector loans (households and non-financial
corporations) to GDP:
2.50
2.00
1.50
2008
2012
1.00
Ratio 2012/2008
0.50
0.00
GR
IR
IT
PO
SP
NPL resolution hurts banks regulatory capital and can force them to
issue more shares, diluting their shareholders.
Bad bank does not have such an incentive: its only mandate is to
resolve the NPLs.
Selling the NPLs to bad bank frees up regulatory capital for new
loans.
Overall:
Bankruptcy Code
Real-Estate Taxes
Credit Outlook
Financial Development
Extent of disclosure.
Extent of director liability.
Ease of shareholder suits.
9
8
7
6
5
4
3
2
1
0
AU
FI
FR
GE
GR
IR
IT
NE
PO
SP
Avg
Greece scores low (tied bottom with Netherlands on IP, bottom on CGQ).
BE
But significant recent rise in IP score (from 3.3 in 2012 to 4.7 in 2013).
Effects: High cost of capital for firms and high barriers to entry.
Household Portfolios
40
35
30
25
Net liquid assets as % of income
20
15
10
5
0
AU
BE
CY
FI
FR
GE
GR
IT
LU
NE
PO
SP
Avg
Source: HFCS Analytical Report and Additional Tables. Survey conducted in 2009-2010.
Deposits
60
Mutual Funds
50
40
Bonds
30
Stocks
20
Voluntary Pensions
10
0
AU
BE
CY
FI
FR
GE
GR
IT
LU
NE
PO
SP
Avg
Source: HFCS Analytical Report and Additional Tables. Survey conducted in 2009-2010.
Greece has:
Summary