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 US Agencies Consult on Capital Treatment of Land Development Loans US Agencies (FDIC, FED, and OCC) issued a proposed rule on the treatment of loans that finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the regulatory capital rule. July 12, 2019 WebPage Regulatory News
News EBA Single Rulebook Q&A: Second Update for July 2019 Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published answers to five questions related to supervisory reporting. July 12, 2019 WebPage Regulatory News
News ESMA Updates Manual for European Single Electronic Format in EU ESMA updated the reporting manual for European Single Electronic Format (ESEF). July 12, 2019 WebPage Regulatory News
News FED Updates Supplemental Instructions for Reporting Form FR Y-9C FED updated the supplemental instructions for FR Y-9C reporting. July 12, 2019 WebPage Regulatory News
News EBA Publishes Report on Monitoring Implementation of LCR in EU EBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU. July 12, 2019 WebPage Regulatory News
News EIOPA Consults on Reporting and Disclosures Under Solvency II Review EIOPA launched a consultation package on supervisory reporting and public disclosure in the context of its work linked with the 2020 Solvency II review. July 12, 2019 WebPage Regulatory News
News APRA Applies Additional Capital Requirements to Three Australian Banks APRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments. July 11, 2019 WebPage Regulatory News
News IMF Report on 2019 Article IV Consultation on Euro Area Policies IMF published its staff report in context of the 2019 Article IV consultation on euro area policies with member countries. July 11, 2019 WebPage Regulatory News
News FSB to Survey Practices on Cyber Incident Response and Recovery FSB launched a survey on the industry practices on cyber incident response and recovery. July 11, 2019 WebPage Regulatory News
News ECB Appoints New Members of Supervisory Board The Governing Council of ECB appointed Edouard Fernandez-Bollo, Kerstin af Jochnick, and Elizabeth McCaul as representatives to the Supervisory Board of ECB Banking Supervision, for a five-year non-renewable term. July 11, 2019 WebPage Regulatory News

RESULTS 1 - 10 OF 3441

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

US Agencies Consult on Capital Treatment of Land Development Loans

EBA Single Rulebook Q&A: Second Update for July 2019

ESMA Updates Manual for European Single Electronic Format in EU

FED Updates Supplemental Instructions for Reporting Form FR Y-9C

EBA Publishes Report on Monitoring Implementation of LCR in EU

EIOPA Consults on Reporting and Disclosures Under Solvency II Review

APRA Applies Additional Capital Requirements to Three Australian Banks

IMF Report on 2019 Article IV Consultation on Euro Area Policies

FSB to Survey Practices on Cyber Incident Response and Recovery

ECB Appoints New Members of Supervisory Board

By Regulatory News

Previous Article

Next Article