Featured Product

    ECB Responds to European Parliament on Its Resolution on Banking Union

    August 30, 2019

    ECB Banking Supervision published its response to the comments and suggestions provided by the European Parliament in its resolution on Banking Union. The key topics covered are risks in the financial system, crisis management procedures, stress tests, supervisory approach of ECB, transparency in decision making, and proportionality in the banking sector in EU.

    The following are the key highlights of the ECB response to European Parliament: 

    • Brexit—ECB supports the call of European Parliament call to deepen common regulation and common supervision. The authorization and supervision of branches of third-country institutions, for example, is still based on national legislation. ECB believes that there is a need for harmonization in this area to ensure that material risks are addressed consistently and to prevent regulatory arbitrage.
    • Nonperforming loans (NPLs)—European Parliament welcomes the reduction in the volume of NPLs over the past years and reiterates its concern that the total number, and proportion, of nonperforming loans and of Level 2 and Level 3 instruments remains well above the average in some member states. ECB continues to fully support initiatives of the July 2017 Council conclusions on the action plan to tackle NPLs, welcomes the progress made, and encourages all stakeholders to complete the remaining parts of the action plan. ECB welcomes the proposed steps to harmonize rules on how non-credit institutions can buy credit agreements from banks, which should remove obstacles preventing the transfer of NPLs from banks to non-credit institutions. This would contribute to addressing the risks related to high stocks of NPLs in Europe.
    • Internal models—The resolution expresses concern about the wide use of internal models by banking institutions and calls on the Single Supervisory Mechanism (SSM) and EBA to continue their work on the adequacy of internal models, to establish their credibility and achieve a level playing field across institutions. ECB continues to fulfill its regular responsibilities in the field of internal model supervision. ECB can further foster a level playing field in the area of internal models through a number of other activities while complementing and reinforcing the work done within the targeted review of internal models or TRIM. 
    • Shadow banking—European Parliament remains concerned about the extent of shadow banking in EU. European Parliament recalls that, at the end of 2017, shadow banking was estimated to account for nearly 40% of the EU financial system. ECB highlights that it is aware of this need and closely monitors leverage, liquidity, procyclicality, and interconnectedness in the non-bank financial sector. 
    • “Failing or likely to fail” assessments—In the resolution, European Parliament stresses the need to improve response times of European banking supervision in the context of “failing or likely to fail” assessments. Regarding the issue of early intervention measures, ECB agrees that there is a need to enhance the effective use of such measures, which has proven to be challenging under the current legal framework.
    • Liquidity in resolution—European Parliament stresses the importance of access to liquidity for banks in resolution, both during and immediately after resolution proceedings, and follows with interest the ongoing debates on a possible tool for the provision of liquidity in resolution. ECB has, on several occasions, stressed the importance of addressing liquidity provision to banks in resolution.
    • Stress tests and Level 2 and Level 3 instruments—European Parliament believes that stress tests should be interpreted in combination with the other ongoing supervisory monitoring activities, calling on the SSM, EBA, and ESRB to use consistent methodologies when defining stress tests in order to ensure a high level of transparency and to prevent possible distortions. ECB notes that EBA defines a common methodology as well as minimum quality assurance guidance for competent authorities.
    • Proportionality—The resolution stresses that BCBS standards should not be enacted wholesale into European law, without taking proper account of the specific characteristics of the European banking system and of the proportionality principle. ECB supports the full, timely, and consistent implementation of the Basel standards while agreeing that regulation that is proportionate and well-aligned to the size and complexity of banks allows for a diverse and sound banking sector. Proportionality is already embedded in the current framework, in the form of simpler approaches to measuring risks and reduced reporting requirements.
    • Transparency of ECB decisions—European Parliament believes that decisions by the supervisory and resolution authorities must be coherent, properly explained, transparent, and public. ECB Banking Supervision is fully committed to transparency and fulfilling its accountability obligations and has made significant efforts to increase the transparency of ECB decisions within the constraints of confidentiality and professional secrecy requirements.

     

    Related Links

    Keywords: Europe, EU, Banking, Banking Union, Brexit, NPLs, Internal Models, Shadow Banking, Stress Testing, Proportionality, Transparency, Resolution, TRIM, SSM, EBA, European Parliament, ECB

    Featured Experts
    Related Articles
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7291