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

    ECB Amends Guideline on Temporary Collateral Easing Measures

    ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.

    June 17, 2021 WebPage Regulatory News
    News

    EIOPA Releases Report on Artificial Intelligence Governance Principles

    EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.

    June 17, 2021 WebPage Regulatory News
    News

    HKMA to Increase Focus on Suptech and Regtech Cloud Adoption

    HKMA published the seventh and final issue of the Regtech Watch series, which outlines the three-year roadmap of HKMA to integrate supervisory technology, or suptech, into its processes.

    June 17, 2021 WebPage Regulatory News
    News

    EC Consults on Improving Transparency in Secondary Markets for NPLs

    EC launched a targeted consultation to improve transparency and efficiency in the secondary markets for nonperforming loans (NPLs).

    June 16, 2021 WebPage Regulatory News
    News

    BIS and Nordic Central Banks Launch Innovation Hub in Stockholm

    BIS, Danmarks Nationalbank, Central Bank of Iceland, Norges Bank, and Sveriges Riksbank launched an Innovation Hub in Stockholm, making this the fifth BIS Innovation Hub Center to be opened in the past two years.

    June 16, 2021 WebPage Regulatory News
    News

    FDIC Tech Sprint Aims to Explore Technologies to Reach Unbanked

    FDITECH, the technology lab of FDIC, announced a tech sprint that is designed to explore new technologies and techniques that would help expand the capabilities of community banks to meet the needs of unbanked individuals and households.

    June 16, 2021 WebPage Regulatory News
    News

    EC Releases Sustainable Finance Taxonomy Compass

    EC released the EU Taxonomy Compass, which visually represents the contents of the EU Taxonomy starting with the EU Taxonomy Climate Delegated Act.

    June 16, 2021 WebPage Regulatory News
    News

    FDIC Proposes Amendments to Real Estate Lending Standards

    FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.

    June 15, 2021 WebPage Regulatory News
    News

    EIOPA to Consider Liquidity Risk in Stress Test for 2021

    EIOPA published its annual report, which sets out the work done in 2020 and indicates the planned work areas for the coming months.

    June 15, 2021 WebPage Regulatory News
    News

    ESRB Paper Discusses Measurement of Impact of Bank Failure via Lending

    The ESRB paper that presents an analytical framework that assesses and quantifies the potential impact of a bank failure on the real economy through the lending function.

    June 15, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7116