If European policymakers, big financial institutions and social partners cannot agree on the full extent of reform, then Europe's financial services sector runs the risk of being plunged back into the unsustainable situation of chasing short-term profit with high risks. Eurofound's new report on the challenges and prospects for the European financial services sector was presented to the European Parliament on Wednesday 13 October 2010.

1. Financial ServicesFinancial Services
Challenges and ProspectsChallenges and Prospects
Eurofound Breakfast Debate hosted by Pervenche Berès
European Parliament
13 October 2010

2. ProgrammeProgramme
Opening Pervenche Berès Chair, Employment and Social Affairs Committee
Jorma Karppinen Director, Eurofound
Financial Services: Challenges and Prospects
Speakers: Radoslaw Owczarzak Research Manager, Eurofound
Kurt Vogler-Ludwig Managing Director, Economix
Commentators: Oliver Roethig Head of UNI Europa Finance
Arnold Kuijpers Managing Director, Rabobank
Exchange with participants
The impact of investment funds on restructuring practices and employment
Donald Storrie Head of Unit, Eurofound
Exchange with participants
Closing Jorma Karppinen Director, Eurofound
Pervenche Berès Chair, Employment and Social Affairs Committee

3. Financial Services - Challenges andFinancial Services - Challenges and
ProspectsProspects
Radoslaw Owczarzak
Research Manager, Eurofound

5. Financial Services - Challenges andFinancial Services - Challenges and
ProspectsProspects
Kurt Vogler-Ludwig
Managing Director, Economix

6. Source: Eurostat (LFS)
Employment changeEmployment change
I/2008 – I/2010I/2008 – I/2010
EU27EU27
% change

7. Source: Economix
Adaptation to the crisisAdaptation to the crisis
in European bankingin European banking
● Significant deleveraging and substantial write-downs on risky assets
● Declining profits rates
● Downsizing of state-owned banks
● Partial concentration on retail and commercial banking
● Partial revival of investment banking
● Reform of remuneration systems (deferred payments)
● Advance of risk assessment tools
● Substantial job cuts (-5 %)

8. Current business modelsCurrent business models
Liberal
approach
Sustainable
approach
State-ownership
approach
Profit orientation • • • • • • •
Client orientation • • • • • • •
Policy stake • • •
Restructuring of activities • • • • • •
Proprietary trading • • • • •
Retail and commercial banking • • • • • • •
Globalisation • • • • •
Job cuts • • • • • •
Main target Leading (global)
financial service
provider
Quality services with
strong customer
commitment
Leading (national)
retail and commercial
financial service
provider
• • • strong • • medium • weak
Source: Economix

9. Financial market regulationFinancial market regulation
EU USA G20
Prudential rules
Capital Requirements
Directive
Tighter rules for core tier 1
capital;
Lower leverage ratios
Taxes and levies Divers
national regulation
Bank levy of $ 117 bn
Guarantee funds European Financial
Stabilisation Mechanism
(€ 750 bn);
National funds
Strengthening of IMF
Restructuring Partial separation of
investment banking
Consumer protection Divers
national regulation
Consumer Financial
Protection Bureau
Compensation schemes Divers
national regulation
Advanced
shareholder rights
Sustainable
compensation rules
Supervisory boards European System of
Financial Supervision
Financial Stability Oversight
Council
Risk monitoring European Systemic Risk
Board
Living wills for complex
institutions
Financial Stability Board
Derivatives markets Alternative Investment
Funds Directive
Central trading platforms Supervision of hedge funds
Rating agencies EU Commission proposal Office of Credit Ratings Tighter rules
Source: Economix

10. Drivers of scenariosDrivers of scenarios
Source: Economix

11. Three scenarios forThree scenarios for
the European financial services sectorthe European financial services sector
● The past is the future – a high-risk scenario
● A new world order for financial markets
– the end of the golden age
● Divided economies – a worst case scenario

12. The past is the futureThe past is the future
– a high-risk scenario– a high-risk scenario
Assumptions
Regulation Weak
Profit orientation Strong
Trading Strong
Labour productivity
increase
High
Risk assessment Sophisticated
Economies of scale High
M&A High
Impact on
- liberal FI + + +
- sustainable FI +
- state-owned FI − − −
- insurance =
Employment − − −
Working conditions Rising efficiency standards
Social dialogue Difficult
Risk of instability High
Source: Economix

13. A new world order for financial marketsA new world order for financial markets
– the end of the golden age– the end of the golden age
Assumptions
Regulation Strong
Profit orientation Limited
Trading Low
Labour productivity
increase
Low
Risk assessment Strong
Economies of scale Medium
M&A Weak
Impact on
- liberal FI − − −
- sustainable FI + + +
- state-owned FI − −
- insurance + +
Employment −
Working conditions Competence enhancement
Social dialogue Rising impact
Risk of instability Low
Source: Economix

14. Divided economiesDivided economies
– a worst case scenario– a worst case scenario
Assumptions
Regulation Weak
Profit orientation Strong and weak
Trading Strong and weak
Labour productivity
increase
High and low
Risk assessment Weak and strong
Economies of scale High and low
M&A High and low
Impact on
- liberal FI ++
- sustainable FI ++
- state-owned FI − − −
- insurance =
Employment − − −
Working conditions Strong differences
Social dialogue Very difficult and strongly integrated
Risk of instability Very high
Source: Economix

15. The impact of investment funds onThe impact of investment funds on
restructuring practices and employmentrestructuring practices and employment
Donald Storrie
Head of Unit, Employment and Competitiveness,
Eurofound