March 28, 2019

ESRB released the 27th issue of its quarterly risk dashboard at a meeting held on March 21, 2019. The risk dashboard provides a set of quantitative and qualitative indicators of systemic risk in the financial system in EU. The overview note accompanying the risk dashboard summarizes the recent development of indicators and contains two annexes describing the methodology and the covered risk indicators.

The dashboard highlights that risks to EU financial stability remained a concern, although market-based indicators of systemic stress in EU have slightly declined over the past quarter. The indicators of systemic stress recovered somewhat during the first quarter of 2019, after having increased at the end of 2018. The indicators for probability of simultaneous default by large and complex banking groups and EU sovereigns followed a similar pattern. Banking sector resilience continued to strengthen in the second half of 2018. The median common equity tier 1 to risk-weighted assets ratio increased to 16% in the fourth quarter of 2018, up from 15.8% in the fourth quarter of 2017. Moreover, the median ratio of non-performing loans to total gross loans and advances continued to improve, reaching 3.1% at the end of 2018, down from 3.3% at the end of 2017. Overall, ongoing supervisory and regulatory work, as well as the improved economic environment, continues to support the reduction of vulnerabilities in the European banking sector.

For the insurance sector, the dashboard also shows that, despite a lower profitability due to reduced investment returns, the median solvency ratio in EU is stable above 200%. For non-life insurers, the median combined ratio is relatively stable over the past 5 quarters, below 100%. The dashboard covers data available to ECB by March 07, 2019. 

Additionally, at the ESRB meeting, the General Board amended the ESRB Recommendation (2016/14) on closing real estate data gaps by adding a new sub-recommendation addressed to Eurostat (to identify a minimum set of common definitions of physical market indicators of commercial real estate), aligning definitions in the text with those included in EU legislation (including, for example, AnaCredit) and updating the deadlines for implementing the Recommendation. The General Board intends to publish the amended Recommendation together with an accompanying explanatory document that clarifies certain technical aspects. The General Board also approved a set of adverse scenarios prepared jointly by ECB staff and the ESRB Task Force on Stress Testing for the 2019 EU-wide stress test of institutions for occupational retirement provision by EIOPA; the ESMA 2019 EU-wide central counterparty stress test; and the ESMA guidelines on stress test scenarios on money market funds.

 

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Keywords: Europe, EU, Banking, Insurance, Securities, Systemic Risk, Risk Dashboard, ESRB

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