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 Revisions to FFIEC Reports 031, 041, 051, and 101

US Agencies (FDIC, FED, and OCC) propose to extend for three years, with revision, FFIEC 031, FFIEC 041, FFIEC 051, and FFIEC 101.

February 21, 2019 WebPage Regulatory News
News

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News
News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News
News

PRA Publishes PS4/19 on Loss-Absorbency Mechanism Under Solvency II

PRA published a policy statement (PS4/19) that provides feedback on responses to the consultation paper (CP27/18) on adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down under Solvency II.

February 20, 2019 WebPage Regulatory News
News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News
News

BIS Paper on Effect of Securities Lending on OTC Market Liquidity

BIS published a working paper that studies how securities lending affects over-the-counter market (OTC) liquidity.

February 19, 2019 WebPage Regulatory News
News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News
News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for February 2019

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

February 15, 2019 WebPage Regulatory News
News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2623