04 07 18 BSGEBA London Giedrius Steponkus Lithuanian
04. 07. 18 BSG@EBA, London Giedrius Steponkus, Lithuanian Investors Association
Cash Outflow (Discipline) Past Present Future Cash Inflow (Elasticity) 2
Quality Gold Elasticity Discipline Quantity Discipline versus elasticity: scarcity of (ultimate) money versus elasticity of credit–IOU Assets o Liabilities 3
Money gold Central Bank: exchange rate currency Banking system: par deposits Securities dealers: price of securities Credit securities To maintain stability CB counter cyclical policy is about artificial management of the hierarchy: injection of elasticity to counter discipline’s overshooting or vice versa by: - --- changing rate of reserves held by commercial banks at the Central Bank, - the lender of last resort, - manipulating overnight interest rates to regulate market interest rate, - deposit facility rates (up to negative), - open market operations - direct investments in financial instruments, - steering market expectations through “forward guidance”. 4
• Dominated by foreign interrelated banks (more than 90% in assets) • 2002 -2008 Foreign Banks flooded Lithuanian market with credit. • 2007 SEB Group alone sold its real estate portfolio (63 Buildings) for almost EUR 200 m and has made EUR 76 m in profit. • 2008 Resembling the Volcker Shock of 1979, foreign banks “Overnight” introduced unprecedented discipline based on unrealistic expectations. • Facing “Survival constrain” many businesses and households lost their assets to the foreign banks. Most of debtors were still not able to walk free from obligations. • In 2007 -2012 biggest Swedish bank made around EUR 45 bln profit. 5
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• Banks should be banned from profiting by “riding” financial waves which they themselves created. • Banks should not be allowed to use their selective control over liquidity for their own profit. • Stricter regulation of re-selling of repossessed assets is required. 10
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- Slides: 11