ESRB published its updated risk assessment via a risk dashboard for this quarter, along with a summary of the March 2021 meeting of the General Board of ESRB. At the meeting, the Board highlighted that full and timely implementation of Basel III remains a priority, discussed the impact of COVID-19 pandemic on financial stability in EU, and focused on ways to address the issues stemming from the pandemic. ESRB announced that it will publish, in Spring, a note highlighting the broad issues related to corporate insolvencies as well as a report summarizing ESRB analysis on macro-prudential policy issues. The General Board also noted that the evidence already gathered could be a starting point for a discussion on improving the macro-prudential buffer framework in the medium term, with a view to contributing to the EC review of the macro-prudential policy framework in 2022.
The following are the other key highlights of the discussions at the meeting:
- The General Board reiterated that the main source of systemic risk in EU originated from the impact of the pandemic and highlighted that, to help rebuild the economy, the current public support measures need to become more targeted as the crisis evolves. The Board saw merit in increasingly complementing liquidity support with equity support, possibly including quasi-equity and subsidies, for viable but overindebted firms, noting that success in containing solvency pressures in the non-financial corporate sector was crucial for minimizing the spillover effects of the COVID-19 crisis on the financial sector.
- The General Board supported the call by micro-prudential banking supervisors to proactively identify and provision for non-performing loans (NPLs) and enhance their organizational capacity for NPL resolution. Member states should identify a set of options to facilitate the process of assessment and, where warranted, restructuring of the debt of viable but overindebted firms to enhance firms’ debt repayment capacity.
- The General Board called on member states to review and, where necessary, improve insolvency and collateral enforcement procedures and strengthen the capacity of the judiciary in order to avoid bottlenecks.
- The General Board discussed macro-prudential policy issues and assessed risks related to broad-based risk-taking, the sustainability of business models, and structural changes in the financial system. It highlighted the four main areas of concern: the profitability and resilience of banks, the indebtedness and viability of borrowers, systemic liquidity risk, and the sustainability of the business models of insurers and pension funds offering longer-term return guarantees.
Keywords: Europe, EU, Banking, COVID-19, NPLs, Basel, Regulatory Capital, Systemic Risk, Credit Risk, Risk Dashboard, Macro-Prudential Policy, ESRB
EC published the Implementing Regulation 2021/763 that lays down implementing technical standards for supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL).
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).
Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
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ESMA published the final guidelines on outsourcing to cloud service providers.
EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.
OSFI has set out the schedule for release of draft guidance on the management of technology risks by federally regulated financial institutions and private pension plans.
MAS updated rules for new housing loans by banks and finance companies.