ESRB published its updated risk assessment via a risk dashboard for this quarter, along with a summary of the March 2021 meeting of the General Board of ESRB. At the meeting, the Board highlighted that full and timely implementation of Basel III remains a priority, discussed the impact of COVID-19 pandemic on financial stability in EU, and focused on ways to address the issues stemming from the pandemic. ESRB announced that it will publish, in Spring, a note highlighting the broad issues related to corporate insolvencies as well as a report summarizing ESRB analysis on macro-prudential policy issues. The General Board also noted that the evidence already gathered could be a starting point for a discussion on improving the macro-prudential buffer framework in the medium term, with a view to contributing to the EC review of the macro-prudential policy framework in 2022.
The following are the other key highlights of the discussions at the meeting:
- The General Board reiterated that the main source of systemic risk in EU originated from the impact of the pandemic and highlighted that, to help rebuild the economy, the current public support measures need to become more targeted as the crisis evolves. The Board saw merit in increasingly complementing liquidity support with equity support, possibly including quasi-equity and subsidies, for viable but overindebted firms, noting that success in containing solvency pressures in the non-financial corporate sector was crucial for minimizing the spillover effects of the COVID-19 crisis on the financial sector.
- The General Board supported the call by micro-prudential banking supervisors to proactively identify and provision for non-performing loans (NPLs) and enhance their organizational capacity for NPL resolution. Member states should identify a set of options to facilitate the process of assessment and, where warranted, restructuring of the debt of viable but overindebted firms to enhance firms’ debt repayment capacity.
- The General Board called on member states to review and, where necessary, improve insolvency and collateral enforcement procedures and strengthen the capacity of the judiciary in order to avoid bottlenecks.
- The General Board discussed macro-prudential policy issues and assessed risks related to broad-based risk-taking, the sustainability of business models, and structural changes in the financial system. It highlighted the four main areas of concern: the profitability and resilience of banks, the indebtedness and viability of borrowers, systemic liquidity risk, and the sustainability of the business models of insurers and pension funds offering longer-term return guarantees.
Keywords: Europe, EU, Banking, COVID-19, NPLs, Basel, Regulatory Capital, Systemic Risk, Credit Risk, Risk Dashboard, Macro-Prudential Policy, ESRB
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.