Featured Product

    ECB Publishes Results of Financial Stability Review in November 2019

    November 20, 2019

    ECB published results of the financial stability review in November 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 issue of the review contains two special features: one examines how and where consolidation could help banks to improve their profitability while the other special feature discusses ways in which the measurement of banks’ systemic footprint can be complemented with new indicators. The review also includes eight boxes, including one that examines the impact of cross-border transactions on real estate markets and one that considers the implications of misconduct costs for banks.

    The review highlights that downside risks to global and euro area economic growth have increased and continue to create financial stability challenges. The euro area banking sector has increased its resilience in recent years. However, slow progress in improving underlying profitability and renewed cyclical headwinds may hamper the ability of banks to respond to downside risks to growth. Non-performing loan (NPL) ratios of banks have improved slightly further since the previous financial stability review, driven by solid loan growth and continued, albeit slowing, reductions in NPLs. Going forward, weaker economic activity and the related increase in new default inflows may make further reductions in NPL ratios more challenging. Banks’ solvency positions appear resilient to the materialization of the main financial stability risks in an adverse scenario. The previous upward trend of bank solvency ratios has come to a halt in recent quarters. Management buffers remain sizable on aggregate though, but a significant part of these is likely to be consumed by the Basel III finalization package, with systemically important institutions being particularly affected.

    Under the baseline scenario of the new macro-micro model of ECB, the solvency position of euro area significant credit institutions is projected to improve; however, under the adverse scenario, the euro area banking system would experience a reduction of up to 3.1 percentage points in the common equity tier 1 ratio. At the individual bank level, the majority of euro area significant institutions would remain above the common equity tier 1 capital requirement. Targeted macro-prudential policy measures are in place to address vulnerabilities in the banking sector and real estate markets, but the toolkit for non-banks needs to be further developed. Macro-prudential instruments could be used to mitigate some of the increase in euro area vulnerabilities, highlighting the importance of a continuation of the efforts to strengthen resilience to adverse shocks. Seven euro area countries have announced a positive CCyB rate, with rates ranging from 0.25% to 2.00%. In general, a greater availability of a releasable buffer in the form of a CCyB would be useful in the euro area. 

    The review notes that non-banks, such as investment funds, insurance companies, and pension funds, have continued to take on more risk and have increased their exposure to riskier segments of the corporate and sovereign sectors. In the event of a sudden repricing of financial assets, growing credit and liquidity risk in some parts of the euro area non-bank financial sector—coupled with higher leverage in investment funds—may lead non-banks to respond in ways that cause stress to spread to the wider financial system.

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Securities, Pensions, Financial Stability Review, Macro-Prudential Policy, NPLs, Systemic Risk, ECB

    Featured Experts
    Related Articles
    News

    APRA Proposes to Increase Transparency of Banking Data

    APRA announced that it is resuming consultation on the confidentiality of data submitted to APRA by the authorized deposit-taking institutions.

    September 29, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Interim Final Rules Issued Amid Pandemic

    US Agencies (FDIC, FED, and OCC) finalized two rules, which are either identical or substantially similar to the interim final rules in effect and issued earlier this year.

    September 29, 2020 WebPage Regulatory News
    News

    EIOPA Consults on Use of Risk Mitigation Techniques Under Solvency II

    EIOPA is consulting on a supervisory statement on the use of risk mitigation techniques by insurance and reinsurance undertakings.

    September 29, 2020 WebPage Regulatory News
    News

    EC Deems UK Framework for CCPs Temporarily Equivalent to EMIR Rules

    EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).

    September 28, 2020 WebPage Regulatory News
    News

    ESMA to Recognize Three Central Counterparties from UK

    ESMA announced that it will recognize three central counterparties (CCPs) established in the UK as third-country CCPs, from January 01, 2021.

    September 28, 2020 WebPage Regulatory News
    News

    PRA Publishes Version 02.04 of PRA110 Liquidity Metric Monitor Tool

    PRA published Version 02.04 of the PRA110 liquidity metric monitoring tool (PRA110 LMM tool).

    September 28, 2020 WebPage Regulatory News
    News

    BoE and FCA Encourage Switch to SONIA in Interest Rate Swap Markets

    BoE and FCA are supporting and encouraging liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA, instead of LIBOR, from October 27, 2020.

    September 28, 2020 WebPage Regulatory News
    News

    Bundesbank Updates Supporting Information for SHS Reporting

    Deutsche Bundesbank published special schema files for securities holdings statistics (SHS), along with a document on the XML format description.

    September 28, 2020 WebPage Regulatory News
    News

    LEI ROC Confirmed as Governance Body for OTC Derivatives Identifiers

    FSB confirmed the Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier System (GLEIS) as the International Governance Body for the globally harmonized identifiers used to track over-the-counter (OTC) derivatives transactions, with effect from October 01, 2020.

    September 25, 2020 WebPage Regulatory News
    News

    FCA Consults on Regulation of International Firms in UK

    FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.

    September 25, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5863