ING Direct 2011 Annual Report Download - page 14

Financial markets and the economy hitthe
brakes in 2011
> Sovereign debt crisis created a highly
challenging economic and financial
environment
> Important changes in regulation
andsupervision
Major changes in the external environment had an impact on ING
in 2011, the most significant being the deepening of the sovereign
debt crisis in the eurozone which created an extremely challenging
economic and financial market environment in the second half of
2011. Consequently, international capital and money markets were
not functioning as normal. This had repercussions, especially in
Europe where funding for governments and financial institutions
dried up in certain markets.
The financial sector was also subjected to further regulatory reform
during the year. Although we support in principle the regulatory
reforms, we have concerns with both the massive volume of new
regulation and the lack of coordination throughout the European
Union (EU) and at the international level. ING favours a harmonised
approach to new financial regulation in the EU, both with regard
todrafting and transposition into national laws. This would minimise
interference with the vital role banks have in supporting the real
economy. One of our primary concerns, therefore, is the increasing
number of national initiatives being taken by different member states
on matters that should, for reasons of maintaining a level playing
field and enhancing the Single Market, be dealt with at the European
level. Examples are the introduction of national bank levies, different
interpretations and timing of Basel III rules and liquidity standards.
Banks based in countries moving ahead of international regulation
could be placed at a competitive disadvantage.
We made good progress in 2011 with the European Commission’s
restructuring requirements for ING Group, and with the strengthening
and streamlining of our banking and insurance businesses. The result
is that ING is now in a relatively good position to navigate successfully
through the challenges that will undoubtedly come from further
changes in the financial and regulatory environment.
CHALLENGING ECONOMIC AND FINANCIAL ENVIRONMENT
The sovereign debt crisis deepened in 2011 and had a negative
effect on the economy and on financial markets.
EUROPEAN SOVEREIGN DEBT CRISIS AFFECTED CREDIT AND
EQUITY MARKETS IN 2011
For the eurozone countries in particular, 2011 was a year of two very
different halves. In the first half there were still signs of continuing
economic recovery; but in the second half the eurozone’s sovereign
debt crisis which had slowly emerged in 2010, deepened and had a
negative knock-on effect on the economy. 2011 was for a large part
marked by the inability of public authorities and institutions to solve
the crisis.
In the eurozone, credit spreads only slightly increased in the first
half of 2011, but moved up in the third quarter of 2011 towards
levels not seen since the direct aftermath of the fall of Lehman
Brothers in September 2008. In the US, credit spreads followed
asimilar pattern, but rose less sharply than in the eurozone.
Equity indices in the US and the eurozone decreased in the second and
third quarter of 2011 and increased somewhat in the last quarter, but
not enough to make up for the earlier downturn. In the eurozone, the
FTSEurofirst 300 Index declined to levels last seen in the second quarter
of 2009. The share prices of financial companies were particularly
adversely affected. In these difficult market circumstances the
performance of the ING share price was better than the FTSE 300 Banks
Index but somewhat worse than the FTSE 300 Life Insurance Index over
2011, as shown in the ‘INGshare’ chapter in this Annual Report.
12 ING Group Annual Report 2011
Financial and regulatory environment