Featured Product

    EBA Examines Funding Plans and Asset Encumbrance of Banks in EU

    August 28, 2019

    EBA published annual reports examining the funding plans and asset encumbrance of banks in EU. The funding plans assessment shows that banks plan to increase debt issuance over the next three years, particularly for unsecured debt instruments. The asset encumbrance report shows a stability of the overall weighted average asset encumbrance ratio in 2018, which is positive for the funding structure of the banking sector.

    Funding plans report. The report analyzes the funding plans submitted by EU banks to the competent authorities and assesses their feasibility. The report sows that some improved fundamentals on banks’ part, such as decreasing non-performing loan ratios, progress to build Minimum Requirement for own funds and Eligible Liabilities (MREL) and sound capital positions, supported generally positive sentiment on bank funding markets. The new legislative framework on covered bonds is expected to promote covered bonds as a funding instrument across EU. National covered bond markets that have been less developed to date are also expected to benefit. The report shows that banks expect total assets to increase by 6.1% over the three-year forecast period from 2019 to 2021. Banks plan to issue more debt instruments in the coming years. The projected data show a concentration of debt issuance in 2020 and 2021. Most likely, the issuance would be driven by the conjunction of the maturities of central bank funding and the recently endorsed revised Bank Recovery and Resolution Directive (BRRD 2), which requires greater levels of subordination. Regarding market-based funding, banks assume that the cost of issuing debt securities will increase in 2019, reversing a downward trend observed over the last three years. 

    Asset encumbrance report. The report monitors the evolution of asset encumbrance and contributes to the ongoing assessment of the composition of funding sources across EU banks. The data show that the level of asset encumbrance remained stable in 2018 compared with 2017, at 27.9%, unchanged compared to December 2017. The stability of asset encumbrance is a positive sign for the funding structure of the banking sector. Nevertheless, the report shows a wide dispersion in the ratio, across both institutions and countries. Repo financing remains the most important source of asset encumbrance in EU, increasing its share to 30% from 27% in December 2017. The share of covered bonds (17%) and central bank funding (10%) as sources of asset encumbrance slightly decreased compared to last year. In terms of the business models of banks, the highest levels of encumbrance are reported by specialized mortgage institutions. As in previous years, a high level of encumbrance is reported in countries where there are large and established covered bond markets (for example, the Nordic countries), where there is a high share of central bank funding (for example, countries that were affected by the sovereign debt crisis, such as Greece and Italy) and where repurchase agreements have traditionally played a significant role in the financial markets (for example, the UK and France). 

    For the assessment of bank funding plans, 160 banks submitted their plans for funding over a forecast period of three years (2019 to 2021). The cut-off date for all funding plan data submitted by banks was May 27, 2019. The report on asset encumbrance is based on the data sample covering 181 banks for which EBA receives data based on the implementing technical standards on supervisory reporting.

     

    Related Links

    Keywords: Europe, EU, Banking, Funding Plans, Asset Encumbrance, BRRD2, Covered Bonds, MREL, EBA

    Featured Experts
    Related Articles
    News

    BOE Article Explains Process for Bank Authorization in UK

    BoE published an article, in the Quarterly Bulletin for the third quarter of 2019, on how banks are authorized in the UK.

    September 20, 2019 WebPage Regulatory News
    News

    HKMA on Commencement of Regulatory Regime Under Insurance Ordinance

    HKMA announced the commencement of new licensing and regulatory regime for insurance intermediaries under the Insurance Ordinance from September 23, 2019.

    September 20, 2019 WebPage Regulatory News
    News

    APRA Revises Standard on Margin Rules for Uncleared Derivatives

    APRA revised CPS 226, which is the prudential standard on margin and risk mitigation requirements for non-centrally cleared derivatives.

    September 19, 2019 WebPage Regulatory News
    News

    SEC Adopts Rules and Amendments Under Regulatory Regime for Swaps

    SEC announced that it took a significant step toward establishing the regulatory regime for security-based swap dealers (SBSDs) by adopting a package of rules and rule amendments under Title VII of the Dodd-Frank Act.

    September 19, 2019 WebPage Regulatory News
    News

    FCA Welcomes ISDA Protocol on Narrowly Tailored Credit Events

    FCA published an update to its initial joint statement with the U.S. SEC and CFTC on opportunistic strategies in the credit derivatives markets.

    September 19, 2019 WebPage Regulatory News
    News

    PRA Issues Consultation on Prudent Person Principle Under Solvency II

    PRA, via the consultation paper CP22/19, has set out its proposed expectations for investment by firms, in accordance with the Prudent Person Principle (PPP).

    September 18, 2019 WebPage Regulatory News
    News

    PRA Proposal on Probability of Default and LGD Estimation

    PRA proposed, via the consultation paper CP21/19, an approach to implementing EBA’s recent regulatory products relating to Probability of Default (PD) estimation, Loss Given Default (LGD) estimation, and the treatment of defaulted exposures in the internal ratings-based (IRB) approach to credit risk.

    September 18, 2019 WebPage Regulatory News
    News

    BIS Formalizes Agreement to Set Up Innovation Hub in Hong Kong SAR

    BIS and HKMA signed the Operational Agreement on the BIS Innovation Hub Center in Hong Kong Special Administrative Region (SAR).

    September 18, 2019 WebPage Regulatory News
    News

    APRA Observations from Thematic Review on Recovery Plans of Insurers

    APRA issued a letter to general insurers and life insurers, outlining observations from a recent thematic review on recovery planning by insurers.

    September 18, 2019 WebPage Regulatory News
    News

    BNM Publishes Financial Stability Review for the First Half of 2019

    BNM published Financial Stability Review for the first half of 2019.

    September 18, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3853