Louka Katseli on the Greek Banking System & Challenges Ahead

Louka T. Katseli graduated from Pierce in 1969, and has since built a truly impressive career spanning across academia and research, politics and international affairs, as well as economics and banking. In the context of a series of lectures organized by the Institute of Diplomacy and Global Affairs at The American College of Greece, we were honored to welcome our alumna back on campus on October 13 for a truly engaging discussion of the Greek banking system and the challenges that lie ahead.

Dr. Katseli discussed the structure of the Greek banking system by presenting key figures, and examined the five main challenges that the Greek banking system will face in the years ahead.

The first main challenge is to restore trust and confidence in the financial system, which Dr. Katseli explained is possible by: establishing political and economic stability, coupled with a credible roadmap for investment recovery; the successful implementation of the third Financial Assistance Program; the gradual decoupling of Greek banks from ELA (Emergency Liquidity Assistance) and the return to normal liquidity channels of the ECB (European Central Bank); the participation of Greek government bonds in the ECB’s quantitative easing program; and the abolition of capital controls.

The second challenge will be to shift funds from non-productive to productive business operations, which can be accomplished by channeling credit to viable enterprises in order to support, as much as possible, the Greek economy’s growth and restructuring, and also the effective management of non-performing loans – especially the restructuring of the banks’ corporate portfolios.

Thirdly, there is a pressing need to preserve solvency and become quickly adjusted to the new regulatory and supervisory framework. With regard to this, Dr. Katseli explained that the three pillars of the banking union are: a single supervisory mechanism, a single resolution mechanism, and a European deposit insurance scheme. Furthermore, there need to be stronger prudential requirements for banks: higher capital requirements, stricter supervision of the business models, more demanding risk management and corporate governance requirements. The speaker noted that adjustment also creates costs and threats, and discussions over the potential risk of over-regulation have emerged.

The fourth main challenge the banking system faces is to improve corporate governance framework and risk management systems, which needs to be accomplished through transparency, accountability and responsibility in decision making, as well as encompassing sufficient collective knowledge, skills, expertise, and diversity on the directorial boards of banks.

Responding to the new digital era and improving profitability is the fifth and final main challenge for the Greek banking system, according to Dr. Katseli, as digitalization provides a number of opportunities, such as creating more efficient channels for customers, while at the same time it offers more cost-effective technologies for banking operations. Banks also need to invest in IT, innovation, and design in order to deliver more sophisticated products to digital-friendly customers, and find new sources of profit. To embrace the digital era and improve the profitability of the Greek banking system, it is also vital that innovative growth strategies such as crowdfunding, SME loans and exporting firms, as well as cluster and value chain financing are targeted at segments of the market.

Ultimately, the biggest challenge for the country will be to promote a sustainable economic transformation that will expand productivity and competitiveness through investment and technological change, mostly in dynamic tradable sectors. For this to be accomplished, the structural reform agenda must give top priority to investment-promoting measures, and extending funding to viable firms and promising investments at a reasonable cost. Furthermore, fiscal policy, most notably tax policy, must support all these efforts rather than work against them, and governance reforms must be designed in such a way as to encourage partnerships and open a true dialogue between the public and private sector, as well as promote, if not demand, transparency and accountability.

About the Speaker

Dr. Katseli was, until recently, Chair of the Hellenic Banking Association, as well as Chair of the Board of Directors of the National Bank of Greece. She has been teaching at the Department of Economics of the National Kapodistrian University of Athens as Professor of International Economics and Development for almost 30 years.

She has also served as Director of the OECD Development Centre, the Center of Planning and Economic Research, and has been a member of several prominent international and European Committees, including the UN Committee of Development Policy. She has also served as Greece’s Minister of Labor and Social Security, Minister of Economy, Competitiveness, and Shipping, and as a member of the Hellenic Parliament.

She holds a PhD in International and Development Economics from Princeton University, an MPA in Public Affairs, an MA in Economics, and a BA in Economics from Smith College, (cum laude, Phi Beta Kappa, 1972). Dr. Katseli is the recipient of numerous distinctions and fellowships, including that of the Best Young Professor at Yale (1980). She has published extensively in the areas of: development economics and finance, migration management, investment and trade, exchange rate policy and institution-building in European and developing countries.