Featured Product

    ESRB Publishes Report on Macro-Prudential Approaches to NPLs

    January 28, 2019

    ESRB published a report on macro-prudential approaches to non-performing loans (NPLs). The report focuses on the role that macro-prudential policy can play in preventing system-wide increases in NPLs and in strengthening bank resilience to such increases. It identifies the main triggers, vulnerabilities, and amplifiers that can drive system-wide increases of NPLs, drawing on the experience of ESRB members, especially those from member states in which such increases were observed in the aftermath of the recent crisis.

    The report presents an analysis performed by ESRB in response to a request from the Council of the European Union to "develop macro-prudential approaches to prevent the emergence of system-wide NPL problems, while taking due consideration of procyclical effects of measures addressing NPLs’ stocks and potential effects on financial stability.” The report not only highlights the business cycle and asset price shocks as two of the main drivers, but also acknowledges the role played by vulnerabilities built up before the crisis—such as excessive credit growth, high indebtedness, and banking practices—and structural factors such as weaknesses in the legal and judicial system.

    In terms of macro-prudential policy approaches, the report concludes that while no fundamental changes to the existing macro-prudential toolkit seem to be required, some refinements should be considered. Further work is needed in areas such as the use of sectoral capital buffers and the development of borrower-based measures (for both households and non-financial corporations). Capital-based instruments should also be considered to address vulnerabilities that could later result in system-wide increases in NPLs. Moreover, the macro-prudential authorities should develop early warning systems to monitor the risks of credit portfolio deterioration from a macro-prudential perspective. Finally, some of the triggers of system-wide NPL problems fall outside the scope of macro-prudential policy, notably the legal and judicial framework as well as banks’ governance structures. Nevertheless, they determine the circumstances in which any macro-prudential policy approach will have to be developed, and, as such, deserve consideration in designing macro-prudential approaches to NPLs.

     

    Related Links

    Keywords: Europe, EU, Banking, NPLs, Systemic Risk, Macro-prudential Policy, ESRB

    Featured Experts
    Related Articles
    News

    APRA Issues Operational Risk Rules, Consults on Reporting Requirements

    APRA published an updated prudential standard APS 115 that sets out operational risk requirements for authorized deposit-taking institutions in Australia.

    December 11, 2019 WebPage Regulatory News
    News

    APRA Decides to Keep Countercyclical Capital Buffer for Banks at 0%

    APRA announced its decision to keep the countercyclical capital buffer (CCyB) for authorized deposit-taking institutions on hold at zero percent.

    December 11, 2019 WebPage Regulatory News
    News

    EBA Issues Revised List of Validation Rules for Reporting by Banks

    EBA published a revised list of validation rules in its implementing technical standards on supervisory reporting.

    December 10, 2019 WebPage Regulatory News
    News

    SRB Holds Annual Conference, Reflects on Turning Policy into Action

    SRB published a report on its fourth annual conference that was held on October 10, 2019 in Brussels.

    December 10, 2019 WebPage Regulatory News
    News

    FED Extends Consultation Period for Capital Requirements for Insurers

    FED is extending comment period for the proposed rule establishing risk-based capital requirements for depository institution holding companies that are significantly engaged in insurance activities.

    December 10, 2019 WebPage Regulatory News
    News

    OSFI Sets Domestic Stability Buffer Level at 2.25%

    OSFI has set the Domestic Stability Buffer, or DSB, at 2.25% of total risk-weighted assets, with effect from April 30, 2020.

    December 10, 2019 WebPage Regulatory News
    News

    FSB Examines Financial Stability Aspects of Bigtech and Cloud Services

    FSB published two reports that consider the financial stability implications from the offering of financial services by bigtech firms and the adoption of cloud computing and data services across a range of functions at financial institutions.

    December 09, 2019 WebPage Regulatory News
    News

    HKMA Proposes Changes to Module on Supervision of Concentration Risk

    HKMA issued a circular proposing revisions to the Supervisory Policy Manual module CR-L-1 on consolidated supervision of concentration risks under the Banking (Exposure Limits) Rules (BELR) Rule 6.

    December 09, 2019 WebPage Regulatory News
    News

    BoE Updates XBRL Filing Manual for Reporting Under Solvency II

    BoE has updated the XBRL filing manual (to Version 5.0) to help firms and software vendors create XBRL instance documents for Solvency II Pillar 3 and BoE Insurance reporting.

    December 09, 2019 WebPage Regulatory News
    News

    APRA Specifies Capital Treatment of Equity Investments in ABGF

    APRA published a letter to the authorized deposit-taking institutions outlining the regulatory capital treatment of their equity investments in the Australian Business Growth Fund (ABGF).

    December 09, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4301