The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ). EBA also published the final guidelines for institutions and resolution authorities on improving resolvability of banks. Finally, EBA launched a consultation paper on the guidelines for institutions and resolution authorities on transferability of parts of, or a whole, bank, with the feedback period ending on April 15, 2022. The draft guidelines specify separability in the context of the application of transfer tools to complement the resolvability assessment.
The resolvability guidelines, taking stock of the best practices developed by resolution authorities on resolvability topics, set out requirements to improve resolvability in the areas of operational continuity in resolution, access to financial market infrastructure, funding and liquidity in resolution, bail-in execution, business reorganization, and communication. These guidelines facilitate resolvability work for cross-border groups and its monitoring in resolution colleges. Institutions and authorities should comply with these guidelines in full by January 01, 2024. Complying with the guidelines will not necessarily equate with being resolvable as this remains for the relevant resolution authorities to determine. Instead, these guidelines should be seen as the minimum steps that institutions should take toward resolvability.
The draft transferability guidelines under consultation aim to assess the feasibility and credibility of transfer strategies and encompass requirements relating to the implementation of transfer tools when considered as the preferred or alternative strategies for institutions. Transferability is defined as the elements of resolvability that will facilitate the transfer of an entity, a business line or a portfolio of assets, rights and/or liabilities to an acquirer (“transfer perimeter”), a bridge institution, or an asset management company. The guidelines deal with the transfer perimeter definition, separability (that is, how to facilitate separation of an entity or a business from the rest of the group in resolution), and operational transfer of this perimeter. The resolvability and transferability guidelines will be updated and complemented as progress is achieved on relevant policy topics, both at the international and the European Union levels. EBA is also working on guidelines on the topics of bail-in disclosure, resolution disclosure, and resolvability testing.
The risk assessment dashboard points to declines in nonperforming loans as well as in loan volumes under moratoria. The majority of banks expect a rise in operational risks mainly due to elevated cyber risks. Nearly 80% of banks consider environmental, social, and governance (ESG) factors credit risk, while over 70% of banks consider them for reputational and operational risks. The metrics most used by banks to assess their exposures to climate risks are carbon or greenhouse gas-financed emissions and environmental scores/ratings of counterparties (both indicated by 45% of banks), followed by the share of green exposures (40%) and the share of environmentally harmful exposures (30%).
- Press Release on Risk Assessment
- Press Release on Bank Resolvability
- Guidelines on Bank Resolvability (PDF)
- Consultation on Transferability (PDF)
Comment Due Date: April 15, 2022 (Transferability)
Keywords: Europe, EU, Banking, Lending, Credit Risk, ESG, Climate Change Risk, Resolution Framework, Bank Resolvability, Transferability in Resolution, BRRD, EBA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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