Featured Product

    ECB Conducts Risk Assessment for Less Significant Institutions in EU

    January 30, 2020

    ECB published the results of an annual assessment on the conditions of less significant institutions in EU. This assessment, which ECB and the national supervisory authorities conduct collaboratively, combines a comprehensive quantitative analysis of the risk profile of the less significant institutions with forward-looking considerations of the main risks and vulnerabilities facing these institutions. The report also contains a thematic analysis of the digital-only less significant institutions, including the innovative banks using primarily digital channels to cater to the existing and new clients.

    Following are some of the key trends that this annual assessment highlighted:

    • The number of less significant institutions is down by 316 (or 11.4%) compared to end-2017, while the number of such institutions has decreased by more than 600 banks since European banking supervision began. The reform of credit cooperative banks in Italy (Banche di Credito Cooperativo or BCCs) has led to the incorporation of 228 BCCs into two significant institution groups. 
    • Poor profitability remains a major vulnerability for the less significant institutions, raising questions about the overall sustainability of certain business models. The less significant institutions are gradually moving into digitalization, with this move presenting many opportunities and risks.
    • With credit risk being a significant concern, solid lending growth, coupled with more active restructuring of non-performing loans (NPLs), helped to decrease NPL ratios for these institutions to 2.7% in 2018. However, about 300 less significant institutions (accounting for nearly 10% of the total sector assets) still exhibit NPL ratios above 5%. Therefore, as prescribed by the EBA guidelines on management of NPLs, enhanced scrutiny of these banks is advisable, including close monitoring of their adherence to credible NPL-reduction plans.
    • Exposures to sovereign counterparties represent a substantial part of balance sheets of the less significant institutions. Thus, developments in sovereign exposures should be closely monitored, including the effects they may have on profitability.
    • The liquidity position of the less significant institutions remains solid, with banks in the sector showing, on average, ample liquidity buffers. Despite the positive situation overall, increasing maturity mismatches between assets and liabilities could represent a source of vulnerability going forward.
    • Although new risks such as those arising from technological developments are increasing the overall operational risk, the weight of operational risk in terms of risk exposure amount is diminishing across all less significant institutions. Interest rate risks in the banking book (IRRBB) have decreased on a year-by-year basis while market risk requirements for the less significant institution sector remain stable and structurally marginal due to business model specificities.
    • Capitalization levels for the less significant institutions remain comfortably above minimum requirements; the average common equity tier 1, or CET1, ratio is 17%, or about 250 basis points, higher than that of the significant institutions sector. The less significant institutions maintain a fully loaded excess CET1 capital (which is above the minimum requirements of between 3% and 6% of their risk exposure amount).

     

    Related Link: Risk Report

    Keywords: Europe, EU, Banking, Less Significant Institutions, Credit Risk, NPLs, Market Risk, Operational Risk, IRRBB, Regulatory Capital, Fintech, ECB

    Featured Experts
    Related Articles
    News

    APRA Plans to Assess Climate Risks and Develop Prudential Guidance

    APRA published a letter that outlines its plans to undertake a climate change vulnerability assessment and develop a prudential practice guide focused on climate-related financial risks.

    February 24, 2020 WebPage Regulatory News
    News

    APRA to Transition to Annual Stress Testing of Large Banks in 2020

    APRA published key findings of the stress testing assessment conducted on authorized deposit-taking institutions.

    February 21, 2020 WebPage Regulatory News
    News

    IAIS Statement on Monitoring Period of Insurance Capital Standard

    IAIS published a statement from its Secretary General Jonathan Dixon on the Insurance Capital Standard (ICS) monitoring period.

    February 21, 2020 WebPage Regulatory News
    News

    EC Consults on Review of Non-Financial Reporting Directive

    EC is launched a consultation on the review of the Non-Financial Reporting Directive or NFRD (Directive 2014/95/EU, as part of its strategy to strengthen sustainable investment in Europe.

    February 20, 2020 WebPage Regulatory News
    News

    EIOPA Consults on Standards for Supervisory Reporting Under PEPP Rule

    EIOPA is consulting on the implementing technical standards for supervisory reporting and cooperation, as mandated by the Pan-European Personal Pension Product (PEPP) Regulation (Regulation 2019/1238).

    February 20, 2020 WebPage Regulatory News
    News

    ECB Report on Transfer of Liquidity from EONIA Products to €STR

    ECB published a report on the transfer of liquidity from the cash and derivatives products of the Euro Overnight Index Average (EONIA) to the Euro Short-Term Rate (€STR).

    February 19, 2020 WebPage Regulatory News
    News

    ESRB Publishes Report on Systemic Cyberattacks

    ESRB published a report that explores systemic implications of cyber incidents, such as cyberattacks.

    February 19, 2020 WebPage Regulatory News
    News

    FSB Chair Sets Out Key Deliverables for G20 Presidency of Saudi Arabia

    FSB published a letter from the Chair Randal K. Quarles to the G20 finance ministers and Central Bank governors ahead of the meetings in Riyadh on February 22-23.

    February 19, 2020 WebPage Regulatory News
    News

    CFTC Proposes Rules on Derivative Position Limits and Swap Execution

    CFTC approved a proposed rule on position limits for derivatives and a proposed rule amending requirements for certain Swap Execution Facilities and real-time reporting.

    February 19, 2020 WebPage Regulatory News
    News

    BIS Appoints Heads of Innovation Hubs in Singapore and Switzerland

    BIS announced key personnel appointments to the Innovation Hubs in Singapore and Switzerland.

    February 19, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4717