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
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.