Sabine Lautenschläger of ECB examined the role of the European banking union in risk reduction in the euro area. She highlighted the need for a harmonized regulatory framework to "reap the full benefits of the banking union."
First, she discussed the issue of options and national discretions (ONDs). While some of these ONDs have been harmonized by supervisors, others lie in the hands of national legislators. Waivers for large exposure limits, for instance, are still fragmented across the euro area. This in turn affects other cross-border waivers, such as that on liquidity requirements. More generally, it stands in the way of a truly European banking market, as do the other ONDs that fall within the competence of national legislators. Second, she examined the need to further harmonize the tools for crisis management. For instance, the overlap between standard supervisory measures and early intervention measures must be removed. As there exists an obligation to apply the least intrusive tool, the overlap often prevents us from taking early intervention measures. Additionally, the toolbox needs to be expanded to include a harmonized moratorium tool. Finally, national insolvency laws need to be aligned. All this would make the Single Resolution Mechanism even more effective.
These measures will help to better contain risks in the future. However, other existing risks must be reduced too. Nonperforming loans (NPLs) pose one of the biggest risks to the European banking sector. She believes that NPLs requires a joint effort by banks, supervisors, and legislators. NPLs need to be dealt with, first and foremost, by the banks and more work needs to be done in this area. In addition, supervisors need to play their part. European supervisors closely monitor how banks approach NPLs and ECB published a guidance on the subject in 2017 and 2018. The aim is not only to resolve the current NPL problem, but also to keep it from recurring in the future. Finally, legislators also need to address the issue of NPLs. Across the euro area, legal and judicial systems differ substantially in terms of effectiveness and efficiency when it comes to dealing with NPLs. The time and resources required to resolve NPLs, thus, differ from country to country. National legislators should strive to improve legal and judicial frameworks.
She concludes: "... there are still things we can do to reduce risks in the euro area... . We must thus be careful not to reach a point where we neither reduce risks nor grow closer together. We have to keep moving on both fronts; only then will we reach our destination of a more stable and prosperous European Union."
Related Link: Speech
Keywords: Europe, EU, Banking, Banking Union, Options and Discretions, NPLs, Crisis Management, ECB, BIS
Previous ArticleFSB Issues Public Consultation on Cyber Lexicon
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting