Wednesday, September 18, 2024, 9:00-17:30 Vienna time (CET)

How can the resilience of the financial system be strengthened? And how should policymakers steer the system through periods of financial turbulence and crisis? These questions were discussed in a recent high-level conference in Vienna, jointly organized by the Oesterreichische Nationalbank (OeNB), SUERF, the Joint Vienna Institute (JVI), and Yale Program on Financial Stability. The conference took place as a hybrid event on September 18, 2024, with a total of about 600 participants. The event brought together leading experts in crisis management, micro- and macroprudential supervision, and policy-oriented research.

In his opening remarks, OeNB Governor Holzmann emphasized the critical importance of a resilient banking sector in light of recent global crises and rising geopolitical tensions. He highlighted the rapid succession of crisis developments in recent years and the need for proactive measures to strengthen financial stability. Holzmann pointed out that the challenges posed by the financial cycle, from economic booms to downturns, require robust regulatory frameworks and macroprudential tools to build resilience and mitigate risks effectively. He also underscored Austria's active macroprudential policy and the positive external recognition of its efforts in enhancing the capitalization of its banking sector and promoting sustainable lending standards.

The first session focused on strengthening resilience and addressing vulnerabilities in the current financial landscape. The panelists—high-level representatives of the Bank of Italy, European Central Bank and National Bank of Croatia—examined whether the existing regulatory and supervisory measures adequately address risks in Europe's financial sector. The discussion highlighted the evolving nature of risks, such as cyber threats and climate-related financial challenges, and the need for adaptive strategies to ensure financial stability.

The following panel discussion revolved around crisis containment. It focused on the implications of digital bank runs and deposit flight risks in today's technologically advanced banking environment. The panelists, including experts from the Bank for International Settlements, European Central Bank, Oliver Wyman and Yale School of Management, debated whether tightening bank liquidity regulations, improving the lender-of-last-resort function or extending deposit insurance could effectively mitigate these risks. They explored the trade-offs involved in these measures, emphasizing the need for a balanced approach to maintaining confidence in the financial system.

Tobias Adrian, Financial Counselor of the IMF, delivered a keynote address on navigating through financial turbulences with preparedness and competence. He reviewed the 2023 bank failures, such as those of Credit Suisse and Silicon Valley Bank, as real-time stress tests for managing crisis developments and maintaining financial stability. His speech highlighted the need for stronger supervision, flexible bank resolution mechanisms, and international cooperation to manage future crises more effectively.

The third session focused on the balance sheet approach to crisis intervention, particularly the use of capital injections and guarantees. Panelists, including experts and academics from Harvard University, Oliver Wyman and the Yale Program on Financial Stability, analyzed how different crisis management tools impact a bank's balance sheet. They stressed the importance of tailored strategies to address specific financial distress scenarios while ensuring the stability of financial institutions.

The final panel addressed the challenges of managing a crisis-related surge in distressed assets with a focus on non-performing loans (NPLs). Experts from the Bank of Greece, Erste Group, European Central Bank and International Monetary Fund shared lessons from past crises and successful NPL resolution strategies, emphasizing proactive measures to prevent NPL accumulation and the importance of loan restructuring and NPL sales in addition to debt enforcement and insolvency. They also discussed the benefits, costs and risks of strategies such as public guarantee schemes and centralized solutions to manage distressed assets.

The presentations and a recording of the event are available on the OeNB website.

Maximilian Fandl, Senior Economist, JVI