ECB published the fourth issue of its biannual Macroprudential Bulletin. This issue provides insights into the analytical work and regulatory issues related to macroprudential policy in the EU. The Bulletin addresses the financial stability implications of minimum requirement for own funds and eligible liabilities (MREL), assesses the impact of bank capitalization changes conditional on a bail-in versus bail-out regime, and discusses the macro-prudential policy aspects of the recently published ECB opinions on the EC proposals for amending the EU banking rules.
The Bulletin begins by discussing the short-term impact of MREL on financial markets and banks from a financial stability perspective. As SRB is setting bank-level MREL targets, the first chapter sheds some light on the ability of debt markets to absorb new issuances of bank debt related to the new requirement. It also provides an assessment of the extra cost to bank funding related to the issuance of bail-in-able liabilities that are more expensive on average and quantifies the impact of this cost on banks’ core profitability and capital. The next chapter (Chapter 2) offers an example of a recently developed analytical tool aimed at enhancing the quantitative model suite. The tool is an income-flow-based contingent claims model for a large sample of European banks. The model can be used to estimate the market value of different bank claimants and reflects how these values may change in response to capital-based macro-prudential policy actions. The framework enables different bail-in/bail-out modalities to be reflected and makes it possible to measure the differentiated impact that capitalization changes may then have on claimants such as debt and equity holders as well as governments. The last chapter (Chapter 3) discusses the macro-prudential policy aspects of the recently published ECB opinions on the EC’s proposals for amending the EU banking rules. It covers the processes for implementation of international standards with macro-prudential relevance (such as leverage ratio and total loss-absorbing capacity), the refinements to the Pillar 2 regime, and the crisis management-related elements of the reform package.
Related Link: Macroprudential Bulletin, Issue 4 (PDF)
Keywords: Europe, Banking, Macroprudential Policy, Macroprudential Bulletin, MREL, ECB
Previous ArticleAnaCredit Updates for France, Ireland, and Italy in October 2017
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI published the key findings of a study on third-party risk management.
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.