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BREXIT! – Not GREXIT?

Greece’s financial systems have been tightly monitored by the institutions – once called the Troika – of ECB, IMF and EU Commission in recent years. The systemically relevant Greek banks are under close control of the Joint Supervisory Team (JST), consisting of staff from the European Central Bank and members of the Bank of Greece, the relevant national supervisor.

The JST’s ongoing supervision is a big job. They have to[1]:

– perform the supervisory review and evaluation process;
– propose a supervisory examination programme;
– implement the approved supervisory examination programme; and
– ensure coordination with the onsite inspection teams and national supervisors.

A Greek banker once wrote to me: “Life need not be easy, provided only that it is not empty.” The Greek banking system is still in unchartered waters, facing a voyage not unlike Homer’s Odyssey. This modern day odyssey really started in May 2010 with the first bailout and the journey continues. Greece has navigated through bailouts and various balance sheets reviews and stress tests. Finally capital controls were introduced which are essentially still in place.

The Greek referendum seems a long time ago. It is not. On 5 July 2015 the Greek people were called to the polls. With a more than 60 % majority, the bailout conditions – mainly requesting more severe austerity measures – were rejected.

A few days later Greece accepted a bailout package that contained larger pension cuts and higher tax increases than the package rejected by the voters in the referendum.

Nobody speaks about Grexit at the moment. The risk is certainly still there. Unemployment rate remains intolerably high, economic growth has not yet returned sufficiently and the burden of non-performing loans weigh heavily on the banks. Despite all efforts this will take years to resolve and the tasks set by the JST are challenging. Banks will make efforts to cut costs, possibly reducing the branch network and increasing productivity. The biggest task will be to reduce the 50% non-performing loans that exist. This will be a function of the banks loss absorbing capacity, the macro-economic performance of the country and the investor appetite. Three pretty unpredictable determinants. If all these efforts fail, Grexit will be on the cards again. It is for history to judge what, if any mistakes have been made along the path.

[1] European Central Bank – Banking Supervision website https://www.bankingsupervision.europa.eu/banking/approach/jst/html/index.en.html

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Rudi Lang

Global Financial Institutions Group Leader

Rudi leads Mazars’ Global Financial Institutions Group and is the Head of Mazars’ Global Monitoring Trustee Services. He has over 20 years’ experience within the financial services industry, working with Mazars’ largest clients, European regulators and public authorities. His experience includes the co-ordination of complex, cross border regulatory projects, large scale projects around European restructuring and special risk management assignments for international banking clients. He has been engaged in Prudential Capital Assessment Reviews and Asset Quality Reviews for a number of European banks and acts as a skilled person for regulators in the UK and across Europe. Rudi is also currently the Monitoring Trustee of some of the most prominent state aid cases in Europe. Rudi is committed to driving industry best practice and to that end has been part of the ICAEW working party formed to examine the dialogue between bank auditors and audit committees. He is a German...
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