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

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004