ESRB Meets, Discusses Key Systemic Risks, and Publishes Risk Dashboard
The European Systemic Risk Board (ESRB) held its September meeting, with discussions centering on key systemic risks in the European Union and the key policy priorities to address these risks. The Board noted reduced risk of COVID-19 crisis causing severe instability in the financial system and that the countercyclical capital buffer and other measures were being activated in a few EU countries to mitigate the cyclical and real estate risks to financial stability. ESRB also published an updated risk assessment via a risk dashboard for this quarter.
The General Board decided that the ESRB Recommendation on the restriction of distributions during the COVID-19 pandemic should lapse at the end of September 2021. The General Board was of the view that the COVID-19 crisis continued to exacerbate the challenges for profitability and solvency positions in the banking, insurance, and pensions sectors in the low interest rate environment. Better-than-expected financial results in 2021 were largely driven by shrinking credit provisions and higher trading income, but the expected deterioration in asset quality was weighing on the profitability outlook for banks. Most notably, while the non-performing loan ratio for EU banks had declined further in the first half of 2021, inflows into IFRS stage 2 and 3 assets and the share of forborne loans in total loans continued to rise, suggesting that credit risk may increasingly be materializing. The General Board also welcomed the two recent reports on the macro-prudential policy stance. The General Board noted that operationalizing the macro-prudential policy stance framework would support policymakers in assessing how appropriate the macro-prudential policy instruments are for addressing systemic risk. In the longer run, this would also foster communication of policy decisions to the general public and increase accountability. The reports, which are due to be published over the coming months, provide examples of how to assess the macro-prudential policy stance. A testing phase will help refine the specific methods and approaches.
Related Links
Keywords: Europe, EU, Banking, COVID-19, Systemic Risk, CCyB, Stress Testing, Dividend Distribution, Risk Dashboard, Risk Dashboard, Macro-Prudential Policy, NPLs, Asset Quality, Credit Risk, Financial Stability, ESRB
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous Article
EBA Publishes Single Rulebook Q&A, Launches Transparency ExerciseRelated Articles
EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
BIS Hub Updates Work Program for 2022, Announces New Projects
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
EIOPA Consults on Review of Securitization Framework in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
UK Authorities Issue Regulatory and Reporting Updates for Banks
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
BaFin Consults on Resolvability Requirements for Resolution Planning
The Federal Financial Supervisory Authority of Germany (BaFin) proposed to amend the “Capital Investment Conduct And Organization Ordinance” and issued a draft circular on the minimum resolvability requirements for resolution planning.
EBA Consults on Certain Standards and Guidelines Under CRR and BRRD
The European Banking Authority (EBA) proposed guidelines, for the resolution authorities, on the publication of the write-down and conversion and bail-in exchange mechanic, with the comment period ending on September 07, 2022.
OJK Publishes Regulatory Updates for Financial Sector Entities
The Financial Services Authority of Indonesia (OJK) is strengthening cooperation with the Australian Prudential Regulation Authority (APRA) and the Japanese Financial Services Agency (JFSA)
EU Publishes Rules on DLT and Data Governance
The European Parliament and the Council published Regulation 2022/868 on European data governance (Data Governance Act).
EBA Publishes Phase 2 of Reporting Framework 3.2
The European Banking Authority (EBA) published phase 2 of its reporting framework 3.2. The technical package supports the implementation of the updated reporting framework by providing standard specifications
