Featured Product

    BIS Quarterly Review Discusses Green Bond Ratings and Bank-NBFI Links

    September 14, 2020

    BIS published its Quarterly Review in September 2020. This quarterly review looks at the recovery of financial market from acute stress in March, noting that the upturn has been uneven and corporate balance sheets remain fragile. The review highlights that credit rating outlooks for banks are still generally negative. The concern in the credit default swap (CDS) markets over lower-rated banks underscores the value of a cautious approach to bank capital amid uncertainty about the evolution of the pandemic and the underlying quality of banks’ assets. This issue of quarterly review includes special features that, among others, explore the potential benefits of a firm-level rating system for green bonds and carbon emissions and the vulnerabilities associated with cross-border links between banks and non-bank financial institutions (NBFIs).

    The special feature on green bonds highlights the potential benefits of a firm-level rating based on carbon intensity (emissions relative to revenue) to complement the existing project-based green labels. Such a rating system could provide a useful signal to investors and encourage firms to reduce their carbon footprint. Current labels for green bonds do not necessarily signal that issuers have a lower or decreasing carbon intensity, measured as emissions relative to revenue. Such ratings, which could complement the existing labeling systems, can be designed to provide extra incentives for large carbon emitters to help combat climate change. An additional benefit of firm-level ratings is that investors could also use them to rate any financial instruments issued by a firm, including stocks and not only bonds, which only a limited number of companies issue. 

    The special feature on cross-border links between banks and NBFIs highlights that the financial market turmoil triggered by COVID-19 revealed the growing importance of NBFIs as bank counterparties. The special feature also points out the several vulnerabilities associated with cross-border linkages between banks and NBFIs. While adding to the understanding of the bank-NBFI nexus, the special feature points to important data gaps. Enhancing the available data along four dimensions would help give a fuller picture of financial vulnerabilities and the attendant transmission channels. These dimensions are the domestic exposures between banks and NBFIs, the specific types of NBFIs that banks have as counterparties, the exposures in the NBFI sector, and the financial instruments underpinning all exposures. The sheer size of NBFIs and their growing interconnectedness with banks warrants continued monitoring by authorities. Some NBFIs face a substantially different regulatory environment compared with banks, in addition to no or limited formal access to central bank liquidity or public-sector credit guarantees, all of which only heightens the need for such monitoring.

     

    Related Links

    Keywords: International, Banking, Securities, Green Bonds, ESG, Climate Change Risk, NBFI, COVID-19, Credit Ratings, Quarterly Review, Cross-Border Banking, BIS

    Featured Experts
    Related Articles
    News

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News
    News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News
    News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News
    News

    APRA Penalizes Heritage Bank for Incorrect Reporting of Capital

    The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Releases Annual Report 2021-2022

    The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Updates Timeline for Implementation of Certain Basel Rules

    Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.

    November 29, 2021 WebPage Regulatory News
    News

    EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR

    EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.

    November 29, 2021 WebPage Regulatory News
    News

    FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR

    The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.

    November 29, 2021 WebPage Regulatory News
    News

    APRA Finalizes Capital Adequacy Standards for Banks

    The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.

    November 29, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.

    November 29, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7751