The European Supervisory Authorities (ESAs) are consulting, until May 02, 2023, on the draft guidelines on the system for the exchange of information when assessing the fitness and propriety requirements. The European Systemic Risk Board (ESRB) published a recommendation on vulnerabilities in the commercial real estate sector in the European Economic Area. Additionally, the European Central Bank (ECB) published the results of the surveys on bank lending and on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets (also known as SESFOD). Finally, the European Securities and Markets Authority (ESMA) agreed on a new Memorandum of Understanding (MoU) with the Financial Conduct Authority (FCA) of UK, regarding cooperation and the exchange of information with respect to benchmark administrators based in the UK. The MoU concerns benchmark administrators who seek recognition or are recognized in the European Union (EU).
Below is a summary of the key aforementioned updates:
- The ESAs consultation sets out guidelines on the system for exchange of information relevant to the assessment of the fitness and propriety of holders of qualifying holdings, directors and key function holders of financial institutions and financial market participants by competent authorities. The draft guidelines aim to increase the efficiency of the information exchange between sectoral supervisors by harmonizing practices and clarifying how competent authorities should use the information system developed by the ESAs. As a next step, ESAs will aim to finalize the Guidelines and ensure that the system for the exchange of information relevant to the assessment of fitness and propriety is available to competent authorities by the end of 2023.
- The ESRB assessment on the commercial real estate sector covers developments up to mid-2022. The findings show that the sector is vulnerable to cyclical risks related to heightened inflation, a tightening of financial conditions limiting the scope for refinancing existing debt and taking new loans, and the pronounced deterioration in the growth outlook following the Russian invasion of Ukraine. Based on the findings, ESRB recommends that EU and national authorities should improve the monitoring of systemic risks stemming from the commercial real estate sector and ensure that financing practices in the sector are sound, financial institutions are resilient, and the application of consistent rules for addressing risks related to commercial real estate exposures across all financial institutions when they perform the same activities, taking into account their specificities. Going forward, ESRB will continue exercising its mandate of macro-prudential oversight of the financial system in the EU member states, Iceland, Liechtenstein and Norway, including identifying financial stability vulnerabilities related to real estate.
- The ECB bank lending survey results show a substantial tightening in credit standards for all loan categories and a decrease in loan demand from firms, as interest rates continued to rise and financing needs for fixed investment fell. For loans to firms, margins on riskier and average loans, collateral requirements, and other terms and conditions had a tightening effect. For housing loans and consumer credit, the net tightening of terms and conditions was primarily due to a widening of margins on both average and riskier loans. Demand for housing loans also decreased strongly owing to rising interest rates, low consumer confidence, and deteriorating housing market prospects.
- The ECB survey on credit terms and conditions covers responses received from a panel of 26 large banks, comprising 14 euro area banks and 12 banks with head offices outside the euro area. The results show that overall credit terms and conditions tightened over the September-November 2022 review period across all counterparty types. The survey participants expect the overall credit terms to tighten further over the review period from December 2022 to February 2023. The survey respondents reported that market-making activities had decreased or remained unchanged for all types of debt securities except domestic government bonds and had increased for derivatives over the past year. With regard to OTC derivatives, survey respondents reported that initial margin requirements for most OTC derivatives increased during the September-November 2022 review period but reported only limited changes with respect to the other questions on non-centrally cleared OTC derivatives.
- ESAs Proposal on Fit and Proper System
- ESRB on Vulnerabilities in Commercial Real Estate
- ECB Survey on Credit Terms and Conditions
- ECB Bank Lending Survey
- ESMA-FCA MoU on Benchmark Administrators
Keywords: Europe, EU, Banking, Fit and Proper Assessments, Commercial Real Estate, Financial Stability, Systemic Risk, SESFOD, Credit Risk, Lending, Credit Terms and Conditions, OTC Derivatives, Benchmark Administrator, Benchmark Regulation, ESAs, ESMA, FCA, ESRB, ECB
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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