General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
November 28, 2018

ECB published results of the financial stability review in November 2018. 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 plays an important role in relation to the micro-prudential and macro-prudential competences of ECB. By providing a financial system-wide assessment of risks and vulnerabilities, the review provides key input to the macro-prudential policy analysis of ECB.

In addition to the usual overview of the current developments relevant for euro area financial stability, the review includes eight boxes and three special features aimed at deepening the financial stability analysis of ECB and broadening the basis for macro-prudential policy making. The first special feature examines how banks can reach sustainable levels of profitability. The second feature examines the financial stability implications stemming from a resurgence of trade tariffs while the third one discusses the rapid growth in exchange-traded funds and their potential for transmitting and amplifying risks in the financial system.

The review highlights that the profitability of euro area significant banks remained broadly stable in the first half of 2018. Structural vulnerabilities, including overcapacity in certain domestic banking markets and high operating costs, continue to dampen bank profitability. Reductions in non-performing loans (NPLs) continued, with the NPL ratios of banks having nearly halved since 2014. Moreover, banks’ solvency positions remain solid. The recent EBA stress test confirmed that the capitalization of euro area banks is sufficient to weather a severe adverse scenario. Additional sensitivity analyses to account for the recent developments, not specifically catered for in the test, lead to an additional capital depletion of about 30 to 70 basis points, on top of the overall common equity tier 1 ratio depletion of 380 basis points in the adverse scenario of the EBA stress test.

The assessment shows that, looking ahead, four key risks to euro area financial stability could materialize over the next two years. First, the most prominent risk stems from the possibility of a disorderly increase in global risk premia. Second, the risk of renewed debt sustainability concerns has increased over the last six months. Third, legacy issues from the financial crisis continue to dampen bank profitability and could hamper banks’ intermediation capacity. Fourth, possible liquidity strains in the investment fund sector constitute a growing risk. 

 

Related Links

Keywords: Europe, EU, Financial Stability Review, Stress Testing, NPLs, Systemic Risk, Macro-prudential Policy, ECB

Related Insights
News

US Agencies Propose Derivative Counterparty Credit Exposure Framework

US Agencies (OCC, FED, and FDIC) proposed to implement a new approach for calculating the exposure amount of derivative contracts under the regulatory capital rule.

December 17, 2018 WebPage Regulatory News
News

HKMA Announces Intention to Consult on Updated BCBS Disclosure Rules

HKMA announced that it will consult the industry in due course on the relevant implementation proposal to give effect to the disclosure requirements of the December 2018 package by BCBS.

December 17, 2018 WebPage Regulatory News
News

HKMA Issues and Revises Reporting Forms Under the IRRBB Framework

HKMA issued a revised version of the Supervisory Policy Manual (SPM) IR-1, with an updated title “Interest Rate Risk in the Banking Book” (IRRBB).

December 14, 2018 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for December 2018

EBA published answers to six questions under the Single Rulebook question and answer (Q&A) updates for this week.

December 14, 2018 WebPage Regulatory News
News

OSFI Proposes Changes to Guideline on Large Exposure Limits

OSFI proposed revisions to the Guideline B-2 on Large Exposure Limits, for implementation in the first quarter of 2020.

December 13, 2018 WebPage Regulatory News
News

BCBS Consults on Disclosure Rules for Leverage Ratio Window-Dressing

BCBS published a consultative document on revisions to the leverage ratio disclosure requirements to address the leverage ratio window-dressing behavior.

December 13, 2018 WebPage Regulatory News
News

PRA Updates the Policy on Approach to Systemic Risk Buffer

PRA published the final Statement of Policy on the PRA approach to the implementation of the systemic risk buffer (SRB), as proposed in the consultation paper CP29/18.

December 13, 2018 WebPage Regulatory News
News

EP Report Examines Financial Supervision and Regulation in US

European Parliament published a report that provides a concise overview of the Dodd-Frank Act, the challenges of its implementation, and efforts to roll back the Act, in large part due to what are viewed to be vague and impractical provisions.

December 12, 2018 WebPage Regulatory News
News

FED Proposes to Revise Several Reporting Forms Including FR Y-9C

FED proposed to extend for three years, with revision, the FR Y-9, FR Y-7N, FR Y-11, and FR 2314 family of reports, in addition to the forms FR 2886b, FR Y-8, FR 2248, FR 2320, FR 2644, and FR 2886b.

December 12, 2018 WebPage Regulatory News
News

EBA Finalizes Guidelines on the STS Criteria in Securitization

EBA published the final guidelines that provide a harmonized interpretation of the criteria for a securitization to be eligible as simple, transparent, and standardized (STS) on a cross-sectoral basis throughout EU.

December 12, 2018 WebPage Regulatory News
RESULTS 1 - 10 OF 2340