ECB Publishes Results of Financial Stability Review in May 2019

By Regulatory News

May 29, 2019

Basel III, Systemic Risk

ECB published results of the financial stability review in May 2019. The financial stability review assesses developments relevant for financial stability, including identifying and prioritizing the main sources of systemic risk and vulnerabilities for the euro area financial system. This review contains three special features related to macro-prudential policy, climate change, and contagion risks. The review highlights that bank profitability prospects are subdued, given the slow progress in addressing structural issues.

The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

Related Links

Effective Date: June 18, 2019

Press Release

Proposed Rule 1

Proposed Rule 2

Proposed Rule 3

Presentation on Regulatory Framework (PDF)

Presentation on Resolution Plan Rules (PDF)

In addition to its usual overview of current developments relevant for euro area financial stability, this review includes three special features aimed at deepening the financial stability analysis of ECB and broadening the basis for macro-prudential policymaking. The first special feature assesses financial stability risks stemming from climate change, with focus on examining the exposure of financial institutions to climate-risk-sensitive assets. The second special feature sets out new ways to model the risk of contagion spreading through the euro area banking sector, while the third feature considers how macro-prudential policy responses might take account of changes in macroeconomic conditions. By providing a financial system-wide assessment of risks and vulnerabilities, the review provides key input to the macro-prudential policy analysis of ECB.

The review highlights that bank profitability is expected to remain low in the euro area. However, capital adequacy of euro area banks remains strong, implying widespread resilience to plausible adverse scenarios. To return to sustainable profitability, euro area banks need to tackle a number of structural challenges—such as low cost-efficiency, limited revenue diversification, and still high stocks of legacy assets in some countries. Additionally, the review reports on continued high risk-taking in the non-bank and fund sector. There are signs that more funds are increasing their leverage and their exposure to higher-yielding assets with commensurately higher credit risk. The global leveraged loan sector, which has grown significantly in recent years, is susceptible to weaker corporate earnings. The review sets out how this sector could pose risks to financial stability, particularly given uncertainties about ultimate exposures to the riskiest parts of collateralized loan obligations.

Related Links

Keywords: Europe, EU, Banking, Securities, Financial Stability Review, Macro-Prudential Policy, Capital Adequacy, Systemic Risk, ECB

EBA Publishes Annual Report for 2018

FCA Publishes Call for Input on Cross-Sector Sandbox


News EBA Consults on Guidelines for Loan Origination and Monitoring in EU EBA launched a consultation on the guidelines on loan origination and monitoring in EU. June 19, 2019 WebPage Regulatory News
News OCC Bulletin on Risk Management Guidance for Home Mortgage Lending OCC published Bulletin 2019-28 on risk management guidance for higher-loan-to-value (LTV) lending activities in communities targeted for revitalization. June 19, 2019 WebPage Regulatory News
News IFRS to Discuss Phase II of IBOR Reform at July Meeting of ASAF IFRS published agenda papers for the Accounting Standards Advisory Forum (ASAF) meeting to be held on July 11–12, 2019. June 19, 2019 WebPage Regulatory News
News EC Amends Regulation Supplementing Solvency II Directive EC published the Delegated Regulation (EU) 2019/981 that amends the Regulation (EU) 2015/35, which supplements Solvency II Directive (2009/138/EC) on the taking-up and pursuit of the business of insurance and reinsurance. June 18, 2019 WebPage Regulatory News
News IOSCO Report Examines Application of International Cyber Standards IOSCO published a final report that examines the application of the three internationally recognized cyber standards and frameworks by IOSCO member jurisdictions. June 18, 2019 WebPage Regulatory News
News PRA Launches 2019 Stress Test Exercise for Life and General Insurers PRA has launched the biennial insurance stress test and is asking the largest regulated life and general insurers to provide information about the impact of a range of stress tests on their business. June 18, 2019 WebPage Regulatory News
SRB Outlines Upcoming Changes in Context of CRR2 and BRRD2 SRB published presentations made at the 8th Industry Dialogue in Brussels. June 18, 2019 WebPage Regulatory News
News EC Publishes Guidelines on Climate-Related Information Reporting EC published the guidelines and associated frequently asked questions (FAQs) on corporate climate-related information reporting, as part of its sustainable finance action plan. June 18, 2019 WebPage Regulatory News
News PRA Finalizes Reporting Amendments to Pillar 2 Liquidity Framework PRA published the final Policy Statement PS13/19 on regulatory reporting amendments and clarifications to the Pillar 2 liquidity framework for banks in UK. June 17, 2019 WebPage Regulatory News
News FSB Assesses Implementation of Compensation Standards and Principles FSB published the sixth progress report on the implementation of its principles and standards for sound compensation practices in financial institutions. June 17, 2019 WebPage Regulatory News

RESULTS 1 - 10 OF 3276

Solutions

Industries

Moody's Analytics Brands

A-Z Product List

Access Online Products

Moody's Analytics Product Training

Insights

Regulatory News

Webinars-on-Demand

Moody's Analytics Risk Perspectives

Meet Our Experts

Connect With Us

Events Calendar

Training

Inquire About Upcoming Events

Meet Our Experts

About Us

Regions

Office Locations

Partner With Us

Connect With Us

Join Us

ECB Publishes Results of Financial Stability Review in May 2019

By Regulatory News

Related Articles

EBA Consults on Guidelines for Loan Origination and Monitoring in EU

OCC Bulletin on Risk Management Guidance for Home Mortgage Lending

IFRS to Discuss Phase II of IBOR Reform at July Meeting of ASAF

EC Amends Regulation Supplementing Solvency II Directive

IOSCO Report Examines Application of International Cyber Standards

PRA Launches 2019 Stress Test Exercise for Life and General Insurers

SRB Outlines Upcoming Changes in Context of CRR2 and BRRD2

EC Publishes Guidelines on Climate-Related Information Reporting

PRA Finalizes Reporting Amendments to Pillar 2 Liquidity Framework

FSB Assesses Implementation of Compensation Standards and Principles

By Regulatory News

Previous Article

Next Article