ESRB released the quarterly risk dashboard at its December Board meeting. 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. This issue of risk dashboard highlights that debt levels remain elevated across countries and sectors in EU, although, over the past years, most countries have deleveraged somewhat. Additionally, at the December meeting, the General Board discussed work being done in the areas of Solvency II review, macro-prudential policy beyond banking, cyber risk, and IFRS 9 impact, in addition to announcing the upcoming ESRB publications on these topics.
The banking sector capitalization stood broadly unchanged, while the reduction of non-performing loans halted. The median common equity tier 1 to risk-weighted assets ratio remained broadly stable 15.5% in the third quarter of 2019, though the decline of the median ratio of non-performing loans to total gross loans and advances halted at about 2.8% in the third quarter of 2019. While credit standards remained relatively stable with some bouts of volatility in 2019, a minor easing of credit standards was registered over the last quarter, both for loans to households for house purchases and for loans to non-financial corporations. Additionally, the residential real estate prices continued to rise considerably in all but one EU member states. The median solvency ratio of the EU insurance sector stabilized at nearly 195%, after a decrease during the previous quarter. In terms of asset allocation, no significant changes existed either in the credit quality characteristics of EU insurers’ bond portfolio or in the liquidity profile of the assets.
The following are the key highlights of the December Board meeting:
- The General Board identified cyber risk as a source of systemic risk to the financial system. A critical point in assessing whether a cyber incident will develop into a systemic financial crisis is whether or not the incident escalates from an operational level to take on financial and confidence dimensions. The ESRB’s analysis, which will be published in the coming months, illustrates how a cyber incident could, under certain circumstances, rapidly escalate from an operational outage to a liquidity crisis. ESRB is continuing to work on cyber risk, focusing on how to mitigate the vulnerabilities identified and on the role of authorities in a systemic cyber crisis.
- In its report on global dimensions of macro-prudential policy, which will be published in the first quarter of 2020, the Advisory Scientific Committee noted that stronger coordination in the field of macro-prudential policy would be key to addressing potential cross-border spillovers and leakages of domestic macro-prudential measures.
- In line with its strategy for expanding macro-prudential policy beyond banking, the General Board believes that the review of Solvency II should result in a revised framework that better reflects macro-prudential considerations. In this context, the General Board considered solvency tools for preventing and mitigating procyclical investment behavior, liquidity tools for addressing risks stemming from the asset and liability side (such as those resulting from hedging with derivatives or from specific insurance products), and tools for addressing risks stemming from the provision of credit to the economy by insurer. These proposals will be described in a forthcoming ESRB report and summarized in the ESRB response to the EIOPA consultation on the review of Solvency II.
- The General Board noted that the concentration of financial instruments measured at fair value according to IFRS 9 and IFRS 13 and classified in Levels 2 and 3 remains high. The General Board noted that as accounting numbers are inputs into the calculation of prudential regulatory requirements, behavior of banks, market perceptions, and supervisory actions may be affected—depending on the extent to which Level 2 and 3 financial instruments can move banks away from their desired regulatory targets in time of stress. It underlined the need for greater transparency in this regard. These findings will be summarized in the ERSB report, which will be published in the first quarter of 2020.
Keywords: Europe, EU, Banking, Insurance, Securities, Risk Dashboard, Systemic Risk, Solvency II, IFRS 9, Cyber Risk, Credit Risk, Macro-prudential Policy, ESRB
Previous ArticleBOE-FCA Propose Data Reforms, Assess Viability of Digital Reporting
Next ArticleIASB Releases List of Planned Consultations for 2020
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.