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

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    News

    EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway

    The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.

    February 25, 2021 WebPage Regulatory News
    News

    PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks

    In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.

    February 25, 2021 WebPage Regulatory News
    News

    FSB Sets Out Work Priorities for 2021

    In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.

    February 25, 2021 WebPage Regulatory News
    News

    EU Publishes Corrigendum to Revised Capital Requirements Regulation

    EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).

    February 25, 2021 WebPage Regulatory News
    News

    ESAs Issue Statement on Application of Sustainability Disclosures Rule

    ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).

    February 25, 2021 WebPage Regulatory News
    News

    EC Consults on Crisis Management and Deposit Insurance Frameworks

    EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.

    February 25, 2021 WebPage Regulatory News
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards for Supervisory Cooperation Under IFD

    EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Addresses Banks in Scope of First Resolvability Assessment

    BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.

    February 24, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6629