Featured Product

    ESRB Updates Risk Dashboard, Revises Recommendation on Dividend Payout

    December 18, 2020

    ESRB released the 34th quarterly risk dashboard at its December Board meeting. The data show that the key source of systemic risk in EU originates from the negative impact of pandemic, which may give rise to widespread defaults in the private sector and their feedback effects on the financial system. Therefore, banks need to be proactive by identifying and provisioning for non-performing loans. It is believed that recognizing losses at an early stage will be the key to keeping bank balance sheets transparent and avoiding cliff effects. In addition, the Board decided to revise the recommendation on dividend distributions and approved the adverse scenario for the 2021 EBA stress test, with the scenario slated to be published at the end of January 2021.

    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. The risk dashboard shows that bank profitability in the EU recovered partially in the second quarter of 2020. Banking sector capitalization improved marginally, while non-performing loans remained broadly unchanged. The median ratio of common equity tier 1 capital to risk-weighted assets increased slightly to 16.3% in the second quarter of 2020. Against the backdrop of the COVID-19 crisis, credit standards for loans to households for house purchases tightened to some extent across EU member states in the fourth quarter of 2020, as were standards for loans to non-financial corporations for a majority of countries. In the insurance sector in EU, the median solvency ratio continued to decrease, falling by 6% to nearly 200% in the second quarter of 2020.

    At the December meeting, the General Board decided to revise and extend its recommendation on restriction of distributions during the COVID-19 pandemic until September 30, 2021. The Board recommended that relevant authorities request banks, investment firms, insurance companies, and reinsurance companies to refrain from distributions. The revised recommendation is in line with the decisions taken in parallel by EBA, EIOPA, and ECB Banking Supervision. The Board called for extreme caution regarding distributions so that the distributions do not put the stability of the financial system and the recovery process at risk. The Board also recommended that the competent authorities set a conservative threshold, which should be calibrated with focus on the

    • need for financial institutions to maintain a sufficiently high level of capital, also considering the risks of a deterioration in the solvency position of corporations and households in view of the pandemic.
    • need to ensure that the overall level of distributions of financial institutions under their supervisory remit is significantly lower than in the recent years prior to the COVID-19 crisis.
    • specificities of each sector within their remit.

    The Board also welcomed the initiatives of EC regarding non-performing loans and emphasized that tackling non-performing loans should be high on the agenda of all authorities. The General Board also discussed the heterogeneity of support programs across different countries. This heterogeneity can and should reflect country-specific vulnerabilities, differences in the impact of the crisis from country to country, along with the differences in national financial systems. Furthermore, the Board underlined the need to coordinate policies across policy areas and countries. The Board also discussed an upcoming ASC Insight from the Advisory Scientific Committee (ASC) on corporate insolvencies in the context of the COVID‑19 pandemic. The ASIC Insight, which is to be published in early 2021, highlighted a need to overcome several deficiencies in insolvency frameworks to facilitate an efficient process of restructuring and reallocation of productive assets. Furthermore, it stressed that formal insolvency procedures were often not well-suited to dealing with small and medium-size enterprises, in particular with respect to the exploration of restructuring options.

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Securities, COVID-19, Systemic Risk, NPLs, Credit Risk, Dividend Distribution, Basel, Regulatory Capital, Stress Testing, ESRB, EC

    Featured Experts
    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    News

    HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26

    HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6821