ESRB released the 29th quarterly risk dashboard at its October Board meeting. The risk dashboard provides a set of quantitative and qualitative indicators of systemic risk in the financial system in EU. The overview note accompanying the risk dashboard summarizes the recent development of indicators and contains two annexes describing the methodology and the covered risk indicators. This issue of risk dashboard highlights that market-based indicators of systemic stress in EU remained relatively benign while the banking sector remained resilient and the reduction of non-performing loans continued.
The dashboard shows that the debt levels remain elevated across countries and sectors in EU, although over the medium-term most countries have deleveraged somewhat. The prices of residential real estate continued to rise considerably in all, but one, EU member states. The profitability of banks in the EU slightly remained broadly stable in the second quarter of 2019. The median solvency ratio of the EU insurance sector decreased by about 15% to 193%. The EU insurers’ asset allocation remained stable. In terms of credit quality characteristics, the EU insurers’ bond portfolio remained largely at investment-grade quality, while there seems to have been a move toward less liquid assets. Meanwhile, total assets under management in the EU investment funds and other financial institutions increased in the first quarter of 2019, reflecting a rise in asset valuations, following strong declines in the final quarter of 2018. The overall picture drawn from the credit counterparty indicators also remained broadly stable.
At the October meeting, the Board considered a framework that should enable ESRB to assess the vulnerabilities related to the commercial real estate sector and the adequacy of the macro-prudential policy responses to address these vulnerabilities. The framework for commercial real estate needs to take into account the particular features of that sector, including the important role played by foreign institutional investors. ESRB will publish a report on this in the coming months. The Board also discussed that the provision of financial services across borders is an important feature of ongoing financial integration in EU. In this regard, the Board discussed the key issues related to the exchange and collection of information on branches of credit institutions for macro-prudential purposes. The Board also exchanged views on an interim report of the Expert Group on Margins and Haircuts, which revisits and extends the previous ESRB findings regarding procyclicality associated with margin and haircut practices. ESRB will publish this interim report in the coming months and will continue to explore the relevant policy options.
Keywords: Europe, EU, Banking, Insurance, Securities, Systemic Risk, Risk Dashboard, Residential Real Estate, NPLs, Commercial Real Estate, Credit Risk, Procyclicality, ESRB
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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