ESMA published the risk dashboard for the third quarter of 2020. The dashboard shows that financial markets in EU continued their recovery in the third quarter of 2020 but remain highly sensitive, as the recent volatility spikes around COVID-19 developments and uncertainties around the US election outcomes show. Credit rating downgrades have been slowing and investment funds recorded inflows across asset classes, especially for bond funds. Looking ahead, ESMA sees a prolonged period of risk to institutional and retail investors of further, possibly significant, market corrections and see very high risks across the whole of ESMA’s remit. The low-for-long interest rate environment is also expected to weigh on the profitability and solvency of banks and insurers.
During the third quarter of 2020, EU financial markets continued their recovery and equity market valuations edged up further. There are increasing signs of strong geographical and sectorial differentiation across financial markets, with fixed-income markets seeing large-scale valuation increases across various segments such as emerging markets, investment grade, and high yield. These developments, taken together, highlight the ongoing risk of decoupling between asset valuations and economic fundamentals. Thus, the potential for a sudden reversal in investor’s risk assessment is the key risk currently seen for EU financial markets and ESMA maintains its risk assessment. The extent to which the identified risks will further materialize will critically depend on three drivers:
- Economic impact of the pandemic
- Market expectations on monetary and fiscal support measures
- Any occurrence of additional external events in an already fragile global environment
Keywords: Europe, EU, Banking, Securities, Risk Dashboard, COVID-19, Credit Ratings, Credit Risk, Market Risk, ESMA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleBCBS Publishes Details on G-SIB Assessment for 2020
The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.
The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).
The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.
The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."
The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.