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
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).
The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.
The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.
The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.
In a letter to the federally regulated financial institutions and pension plans, the Office of the Superintendent of Financial Institutions (OSFI) published a summary of the feedback received to the January 2021 discussion paper on ways to address climate risks.