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
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.