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    ESRB Discusses Key Systemic Risks, Updates Macro-Prudential Measures

    December 09, 2021

    The General Board of the European Systemic Risk Board (ESRB) held its December meeting, with discussions centering on key systemic risks in the European Union and the key policy priorities to address these risks. The General Board noted that the risk of an abrupt broad-based asset price correction had increased further owing to continued exuberance in credit, asset, and housing markets. While noting that the EU banking system had so far proved resilient during the pandemic, it stressed that asset quality and profitability concerns remained elevated in some countries and for banks with large exposures to particularly hard-hit sectors. ESRB also published an updated risk assessment via the risk dashboard for this quarter.

    The General Board discussed risks to financial stability stemming from the large-scale use of substantially systemic clearing services provided by UK-based central counterparties (CCPs). In this context, it saw a need to strengthen the powers of the European Securities and Markets Authority (ESMA) over Tier 2 central counterparties to ensure closer cooperation between European Union (EU) and non-EU authorities in resolving such stress. The General Board also agreed that, from a financial stability perspective, reducing those risks would require developing the offer of clearing services within the EU. Furthermore, it may be advisable to reflect on the allocation of supervisory powers within the EU and strengthen the role of EU-level supervision in parallel with an increase in clearing activity that might take place at some EU-based central counterparties. The General Board also discussed vulnerabilities in residential real estate markets and macroprudential policies to mitigate them. The General Board welcomed the report on vulnerabilities in residential real estate markets in European Economic Area countries as well as the second compliance report on the six countries (Belgium, Denmark, Luxembourg, the Netherlands, Finland and Sweden). Both reports will be published at the beginning of 2022.

    The Board also welcomed the report on “Mitigating systemic cyber risk,” which outlines the systemic cyber incident coordination framework for financial authorities (EU-SCICF) and a macroprudential strategy to mitigate systemic cyber risk. This report will also be published at the beginning of 2022. In addition, ESRB updated the list of national macro-prudential measures applied by each member state in the European Economic Area. These national macro-prudential measures include capital conservation buffer, countercyclical capital buffer, systemic risk buffer, and global and other systemically important (G-SII and O-SII) buffers, reciprocation measures, and borrower-based measures. In another development, the European Banking Authority (EBA), the European Central Bank (ECB), and ESRB have been notified by certain European national authorities about their decision on the identification of G-SIIs and O-SIIs, the activation of the G-SII and O-SII buffers, and the level of systemic risk buffers.

     

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    Keywords: Europe, EU, Banking, Systemic Risk, CCP, Risk Dashboard, Macro-Prudential Policy, Asset Quality, Credit Risk, Financial Stability, Cyber Risk, Macro-Prudential Measures, Borrower-Based Measures, O-SII, G-SII, Capital Buffer, Regulatory Capital, Basel, ESRB

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