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July 28, 2017

ESRB published its sixth annual report, which details its achievements and activities between April 01, 2016 and March 31, 2017. During the year, ESRB continued to develop the framework and tools for the identification of systemic risk, with a focus on residential real estate and the non-bank financial sector. It identified systemic risks in the financial system in the EU and worked on policies to address these systemic risks.

The annual report highlights that ESRB identified key risks to financial stability in the EU, which were re-pricing of risk premia in global financial markets; weaknesses in balance sheets of banks, insurers, and pension funds; debt sustainability challenges in sovereign, corporate, and household sectors; and shocks and contagion from the non-bank financial sectors to the wider financial system. These identified risks that formed the basis for the design of adverse scenarios for the EU-wide stress tests of the ESAs. ESRB provided adverse scenarios for the stress test of central counterparties (CCPs) by ESMA and the stress test of occupational pension funds by EIOPA. ESRB continued to analyze the EU-wide dataset on derivatives transactions, resulting from European Market Infrastructure Regulation (EMIR), with the aim of improving the understanding of systemic risks in derivatives markets. ESRB also responded to EIOPA’s public consultation on a potential harmonization of recovery and resolution frameworks for insurers.

 

Another key highlight this year was ESRB's publication of the first edition of an annual EU Shadow Banking Monitor, along with its methodology for monitoring financial stability risks in the shadow banking system in the EU. The agency also contributed to the EC’s consultation on the review of the EU macro-prudential policy framework. With regard to its contribution toward the macro-prudential framework for banking, ESRB provided its views to EBA on the introduction of the leverage ratio, contributed to the EBA report on the cyclicality of capital requirements, and provided its views to EBA on the definition of a net stable funding ratio. Additionally, ESRB analyzed the medium-term vulnerabilities in the EU member states relating to the residential real estate sector. Based on its assessment, ESRB issued, for the first time since its establishment, public warnings to eight countries (Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands, Sweden, and the United Kingdom). ESRB also found significant gaps in the data available to analyze the real estate sector and, therefore, adopted a recommendation on closing real estate data gaps to establish a more harmonized framework for monitoring developments in residential and commercial real estate markets in the EU.

 

Related Link: ESRB Annual Report (PDF)

Keywords: Europe, Banking, Insurance, Annual Report, Macro-Prudential Policy, Stress Testing, Systemic Risk, EU, ESRB, Securities

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