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
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
PRA published a statement to insurers that clarifies the approach to application of the matching adjustment during COVID-19 crisis.
EBA published a report on the implementation of selected COVID-19 policies within the prudential framework for banking sector.
EC launched a consultation to revise the network and information systems (NIS) Directive (2016/1148), which was adopted in July 2016 and is the first horizontal internal market instrument aimed at improving the resilience of the EU against cybersecurity risks.
PRA published a statement that outlines its view on the implications of LIBOR transition for contracts in scope of the “Contractual Recognition of Bail-In” and “Stay in Resolution” parts of the PRA Rulebook.
PRA published the policy statement PS15/20 to reflect additional resilience associated with higher macro-prudential buffers in a standard risk environment with a reduction in Pillar 2A capital requirements.
BCBS published the eighteenth progress report on implementation of the Basel III regulatory framework in member jurisdictions.
FCA announced proposals that would provide continued support for certain consumer credit products to users, who are facing a financial impact because of the exceptional circumstances arising from the COVID-19 pandemic.
ACPR published a draft version of taxonomy RAN 1.4.0_PWD1, along with the related documentation, for Solvency II reporting.
BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).