The Advisory Scientific Committee of ESRB published a report on the risk channels associated with international financial integration for EU economies. It also provides an overview of the macro-prudential policy options that are available to address these risks. The report builds on the main insights from the rich academic literature developed recently to create a narrative of the role of global variables for the conduct of macro-prudential policy at a national level. The report reviews evidence on the cross-border spillovers of domestic macro-prudential policies. It also highlights key policy areas to make macro-prudential policy as effective as possible. Annex 1 to the report presents findings from several new research papers across the European System of Central Banks.
The report highlights that recent research supports the existence of a global financial cycle in capital flows, asset prices, and credit. The global financial cycle influences domestic financial cycles and increases the vulnerability of domestic economies to external shocks from core economies (particularly from the United States but also from China, Japan, UK and the euro area). Due to their cross-border activities, global banks play an important role as generators, transmitters, and receivers of global systemic risk. Moreover, non-bank financial institutions’ activities and interconnections have also started to influence the dynamics of the global financial cycle.
A main objective of the regulatory reform following the global financial crisis was to make global financial institutions absorb the externalities they create with their global activities. This report focuses on the macro-prudential policy implications of those activities and considers possible policy changes. The report also calls for closer monitoring of the activities of global non-bank financial institutions, particularly in terms of their interaction with global systemic risk. From the perspective of a domestic economy, existing empirical evidence points to the effectiveness of macro-prudential measures in boosting resilience to dampen the transmission of the global financial cycle to domestic economies. Additionally, increased international cooperation in the field of macro-prudential policy would address possible spillovers of these measures.
Keywords: Europe, EU, Banking, Macro-Prudential Policy, Systemic Risk, Financial Integration, Cross-Border Spillovers, Macro-Prudential Measures, ESRB
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI published the key findings of a study on third-party risk management.
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.