Featured Product

    ECB Publishes Seventh Issue of Macroprudential Bulletin in March 2019

    March 27, 2019

    ECB published Issue 7 of the Macroprudential Bulletin, which provides insight into the ongoing work of ECB in the field of macro-prudential policy. The Bulletin presents an overview of the macro-prudential policy measures that are being implemented in euro area countries as of January 01, 2019. Additionally, this issue includes four articles on key macro-prudential topics, including an assessment of bank regulatory reforms ten years after the crisis, results from the new macro-prudential stress test framework, macro-prudential analysis of residential real estate markets, and analyses of the recent decisions on the countercyclical capital buffer (CCyB).

    Post-crisis bank resilience. The first article investigates whether the euro area banking system is more resilient ten years after the global financial crisis. It compares the ability of euro area banks to absorb potential shocks before the 2008 global financial crisis and ten years later, taking into account the impact of post-crisis reforms on bank capital and loss-absorbing capacity, including the new, post-crisis resolution framework. The analysis shows a significant increase in the ability of the euro area banking system to withstand potential shocks without costs for taxpayers after the global financial crisis and the post-crisis wave of reforms. This has been achieved through higher regulatory capital and the new resolution framework, which includes the bail-in tool and the potential intervention of the Single Resolution Fund, as well as a significant reduction in the average probability of default of banks. Notwithstanding the significant increase in the average level of resilience in the euro area banking system, the post-crisis regulatory work is not yet complete. Recent and outstanding regulatory reforms, particularly the finalization of the Basel III package and the minimum requirement for own funds and eligible liabilities (MREL) requirements, should be properly implemented to further strengthen the resilience of banks, especially outlier institutions.

    Results from macro-prudential stress test. The second article summarizes the results of the macro-prudential stress test of the euro area banking sector in 2018-2020 and assesses the resilience of the European banking sector’s resilience, if faced with a global economic recession. The results indicate substantial resilience of the euro area banking system at the current juncture. The macro-prudential stress test predicts a lower negative impact on capital ratios, though higher capital depletion, in billions of euro, than a static balance-sheet stress test. They also show that bank deleveraging tied to deteriorating capitalization and asset quality leads to further deterioration in economic conditions in an adverse scenario.

    Macro-prudential analysis of residential real estate markets. The third article presents ECB framework for assessing financial stability risks stemming from residential real estate markets and for designing macro-prudential policy responses. It also reviews recent developments in residential real estate markets and policy initiatives to address risks. The current analysis indicates that residential real estate vulnerabilities relevant to macro-prudential policy are present in a number of euro area countries. In general, over the past years, the activation of macro-prudential instruments related to residential real estate risks recognizes the need for a proactive policy stance to avoid possible negative consequences for the financial sector and the broader economy. However, the continuation of observed trends in residential real estate markets in some countries suggests that further policy actions remain warranted in the near future.

    Analysis of CCyB decisions. The fourth article reviews the country-specific strategic choices and decisions regarding timing and calibration of CCyB in countries participating in the Single Supervisory Mechanism (SSM). It sheds light on the causes of the different policy choices and exposes limitations encountered in the prominent role of the credit-to-GDP gap in the current Basel framework. Ultimately, assessing risks across euro area countries consistently, while taking into account country-specific factors, supports the effective use of CCyB as a macro-prudential instrument and ensures that similar risk exposures are subject to the same set of macro-prudential requirements. The consistent use of additional risk indicators over time and across countries can help make macro-prudential policy more predictable. 

     

    Related Links

    Keywords: Europe, EU, Banking, Post-Crisis Reforms, Macroprudential Bulletin, CCyB, Residential Real Estate, Stress Testing, Macroprudential Policy, ECB

    Featured Experts
    Related Articles
    News

    HKMA Urges Early Action for Adherence to IBOR Fallbacks Protocol

    HKMA urged authorized institutions to take early action to adhere to the IBOR Fallbacks Protocol, which ISDA is expected to publish soon.

    October 16, 2020 WebPage Regulatory News
    News

    FSB Sets Out Roadmap for Transition to Alternative Reference Rates

    FSB published a global transition roadmap for London Inter-bank Offered Rate (LIBOR).

    October 16, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Response to Proposal on BRRD2 Transposition

    HM Treasury published a document that summarizes the responses received from a consultation on the approach of UK to transposition of the revised Bank Resolution and Recovery Directive (BRRD2).

    October 15, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Response to Proposal on CRD5 Transposition

    HM Treasury published the government response to the feedback received on the consultation for updating the prudential regime of UK before the end of the Brexit transition period.

    October 15, 2020 WebPage Regulatory News
    News

    PRA Updates Supervisory Statement on Counterparty Credit Risk

    PRA published the final policy statement PS22/20, which contains the updated supervisory statement SS12/13 on counterparty credit risk.

    October 14, 2020 WebPage Regulatory News
    News

    FSB Publishes Update on Work to Address Market Fragmentation

    FSB published an update on its work to address market fragmentation. FSB is working in this area in collaboration with the other standard-setting bodies.

    October 14, 2020 WebPage Regulatory News
    News

    EBA Proposes to Revise Guidelines on Incident Reporting Under PSD2

    EBA proposed revisions to the guidelines on major incident reporting under the second Payment Service Directive (PSD2).

    October 14, 2020 WebPage Regulatory News
    News

    EBA Finalizes Standards for Prudential Treatment of Software Assets

    EBA published the final draft regulatory technical standards specifying the methodology for prudential treatment of software assets by banks.

    October 14, 2020 WebPage Regulatory News
    News

    FSB Publishes Roadmap on Cross-Border Payments, Report on Stablecoins

    FSB published a report presenting the roadmap to enhance cross-border payments by providing a high-level plan that sets ambitious but achievable goals and milestones in the five focus areas.

    October 13, 2020 WebPage Regulatory News
    News

    EIOPA Urges Insurers to Prepare for End of Brexit Transition

    In a recent communication, EIOPA urged the insurance sector to complete its preparations for the end of the Brexit transition period on December 31, 2020.

    October 13, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5959