EBA published the annual report on asset encumbrance of banks in EU. This report monitors the evolution of asset encumbrance and contributes to the ongoing assessment of the composition of funding sources across EU banks. The assessment showed that the asset encumbrance ratio of banks rose substantially in the first half of 2020. This is because, as COVID-19 spread across Europe and activity in primary markets froze, banks extensively used the central bank liquidity facilities to build precautionary liquidity buffers and to respond to the sharp increase in lending to non‐financial corporates.
The analysis showed that the highest levels of encumbrance are reported in countries where covered bonds are a predominant funding tool (Nordics and Germany), where repos play an important role (France), or where banks have made more extensive use of central bank funding over the past few years (Greece, Italy, and Spain). In contrast, Baltic and Central and Eastern European banks present levels of encumbrance below 10% in most cases. Greek banks, which experienced the biggest decrease in the ratio in 2019, were also the ones that registered the largest increase in their asset encumbrance ratio in the first half of 2020. The increase was also substantial in some core Eurozone countries such as Austria, Belgium, and the Netherlands.
In contrast, the attractive conditions of central bank facilities have led many banks to reduce their reliance on covered bonds. Repos, whose share has remained roughly stable, were the most important source of encumbrance in 2020. Almost half of the total central bank eligible assets were encumbered in June 2020. Nonetheless, banks increased their stock of unencumbered central bank eligible assets and collateral by more than 10% in the first half of 2020. The analysis highlights that supervisory authorities should pay special attention to the increased reliance on central bank funding. Although the recent increase in the asset encumbrance ratio is not a concern by itself, the capacity of banks to further make use of central bank funding when necessary should be monitored.
This report is based on December 2019 and June 2020 data. Although previous editions of this report have focused on year‐end data, the effects of the outbreak of the COVID‐19 pandemic on asset encumbrance deserve particular attention. The report covers the 167 banks from which EBA received data for the June 2020 reference date, based on the implementing technical standards on supervisory reporting. The EU aggregates in this report exclude figures for UK banks but include data for subsidiaries of UK banks in EU countries.
Keywords: Europe, EU, Banking, COVID-19, Asset Encumbrance, Covered Bonds, Credit Risk, Central Bank Liquidity, EBA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleBank of Italy on Published Update Related to AnaCredit Reporting
FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.
MAS revised Notices 637 and 1111 on the risk-based capital adequacy requirements, along with Notice 656 on the exposures to single counterparty groups for banks incorporated in Singapore.
ISDA is consulting on the implementation of fallbacks for the sterling LIBOR ICE Swap Rate and for the USD LIBOR ICE Swap Rate.
SEC announced that the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions.
BIS and BoE launched the BIS Innovation Hub Center in London, which is the fourth new Innovation Hub Centre to be opened in the past two years.
ESRB published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden.
MAS revised multiple notices that are applicable to banks and merchant banks in Singapore and have been issued pursuant to the Banking Act (Cap 19).
EC published the Delegated Regulation 2021/931, which supplements the Capital Requirements Regulation (CRR or Regulation 575/2013) with regard to the regulatory technical standards specifying the method for identifying derivative transactions with one or more than one material risk driver.
BCBS is consulting on preliminary proposals for the prudential treatment of cryptoasset exposures of banks.
EBA issued a revised list of validation rules under the implementing technical standards on supervisory reporting.