ESRB released the 31st quarterly risk dashboard at its April Board meeting. The risk dashboard provides a set of quantitative and qualitative indicators of systemic risk in the financial system in EU. The overview note accompanying the risk dashboard summarizes the recent development of indicators and contains two annexes describing the methodology and the covered risk indicators. This issue of risk dashboard highlights that market-based indicators of systemic stress in EU have increased sharply after the outbreak of the COVID-19 while the banking sector capitalization stood broadly unchanged and the reduction of non-performing loans improved slightly. At the April meeting, the Board discussed the impact of the COVID-19 pandemic on the financial system in EU.
The risk dashboard shows that the debt levels remain elevated across countries and sectors in EU, although most countries have somewhat deleveraged over the last few years. Credit to the private sector continued to grow robustly in many EU member states until the outbreak of the COVID-19 crisis. The cost of borrowing for the private sector also remained low before the COVID-19 outbreak, reflecting low refinancing costs for banks and low risk pricing. Residential real estate prices continued to rise considerably in all but one EU member state. However, profitability of banks in EU decreased while the median ratio of common equity tier 1 to risk-weighted assets remained broadly stable at 15.6% in the fourth quarter of 2019. The median ratio of non-performing loans to total gross loans and advances fell by 10 basis points over the previous quarter and was nearly 2.6% in the fourth quarter of 2019. Additionally, the median solvency ratio in the insurance sector in EU deteriorated by nearly 10 percentage points, to roughly 185% while the liquidity profile of assets deteriorated slightly for some insurers.
The ESRB, at its April meeting, highlighted that the EU bodies, along with the governments, central banks, and supervisory and resolution authorities, have taken unprecedented actions to mitigate the negative impact on the real economy. ESRB published an overview of policy measures take in response to the COVID-19 crisis and plans to update this regularly. It decided to focus on five priority areas:
- Implications for the financial system of guarantee schemes and other fiscal measures to protect the real economy
- Market illiquidity and implications for asset managers and insurers
- Impact of procyclical downgrades of bonds on markets and entities across the financial system
- System-wide restraints on dividend payments, share buybacks, and other payouts
- Liquidity risks arising from margin calls
- Press Release
- Risk Dashboard (PDF)
- Overview Note (PDF)
- Annex I (PDF)
- Annex II (PDF)
- Overview of Policy Measures
Keywords: Europe, EU, Banking, Insurance, Securities, Systemic Risk, Risk Dashboard, Residential Real Estate, NPLs, Credit Risk, Procyclicality, COVID-19, Liquidity Risk, ESRB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE has set out a three-phased plan to transform data collection from the UK financial sector over the next decade.
BIS recently made a couple of announcements with respect to the planned and ongoing work in the area of financial technology.
ESRB updated the list of national macro-prudential measures applied by each member state in the European Economic Area.
BoE has set out results of a survey on the impact of COVID-19 events on the use of machine learning and data science.
In response to a request from the European Council and Parliament, ECB published an opinion on the proposed regulation on markets in crypto-assets.
APRA announced the updated aggregate amounts for the 2021 Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to the Liquidity Coverage Ratio (LCR).
ECB published supervisory Memorandums of Understanding (MoUs) with UK as well as other European and non-European authorities.
EIOPA identified business model sustainability and adequate product design as the two EU-wide strategic supervisory priorities.