Featured Product

    NBB Examines Stability and Resilience of Financial Sector Amid Crisis

    July 01, 2020

    NBB published the financial stability report, with macro-prudential policy being one of the key focus areas in the context of the wide set of economic and financial policies adopted amid the COVID-19 crisis. The report highlights that COVID-19 pandemic posed challenges to the financial sector and financial stability; however, the Belgian financial system has solid capital and liquidity buffers and can, thus, play a key role in cushioning the impact of the crisis on households and businesses. NBB, as a supervisor, calls on financial institutions to continue to support the real economy, if necessary, by using the built-up capital and liquidity buffers.

    The report discusses the macro-prudential policy in Belgium, examines the financial stability of banking and insurance sectors, and contains a couple of thematic articles on the residential and commercial real estate market and the climate-change-related transition risks associated with real estate exposures in the Belgian financial sector. In terms of the forward-looking guidance on macro-prudential aspects, NBB emphasizes that, taking into account the latest scenarios and prospects, the deactivation of the countercyclical capital buffer, which was announced in March 2020, is likely to be extended until at least mid-2021. NBB is closely monitoring developments on the Belgian real estate and credit markets and it stands ready to release the macro-prudential capital buffers for real estate risks if, for example, those risks should materialist and lead to a substantial increase in non-performing loans. Supervisory expectations on mortgage credit also remain applicable. Although the macro-prudential buffers for systemically important institutions (the so-called O-SII buffers) are primarily structural, a release of such buffers is in principle possible.

    NBB highlights the importance of financial sector continuing to play its role as a financial intermediary and actively contributing to cushioning the impact of the crisis and supporting the real economy. In this context, NBB makes a number of recommendations to the financial sector, particularly the credit institutions:

    • The first recommendation aims to encourage maximum responsible use of micro- and macro-prudential buffers to support the real economy. The use of such buffers by individual banks is justified from a macro-prudential point of view and supports the real economy by avoiding pro-cyclical credit crunches. Individual banks’ reluctance to use these buffers—for example, on the grounds of stigma effects or as a precaution for possible future solvency issues—may be counterproductive in the context of this crisis and may substantially increase the impact of the crisis on the real economy.
    • Against the backdrop of unprecedented micro- and macro-prudential easing as well as significant uncertainty as to financial institutions’ future profitability, NBB, as the macro-prudential authority, also recommends that the financial sector should temporarily exercise the necessary restraint with regard to current and future dividend payout policies (and similar operations) or in the allocation of variable remuneration for senior staff; the sector should refrain from making dividend payments or similar operations at least until the beginning of October 2020. Regarding credit institutions, this recommendation applies to all banks active in Belgium and to dividend payments and/or transfers or similar transactions within international banking groups by systemically important subsidiaries active in Belgium.
    • In addition to the necessary focus on the short-term implications of the COVID-19 crisis, the financial sector should continue to pay attention to major longer-term structural challenges. For example, the persisting low interest rate environment remains a major structural challenge for the profitability of banks and a reassessment of the viability of certain business models is needed. In addition, the transition to a more sustainable and digitized economy will gain more traction. It is very important not only to exploit the opportunities of such transitions but also to closely monitor and mitigate the inherent risks that such structural transitions necessarily entail, also in terms of financial stability.

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Financial Stability Report, Basel, COVID-19, Credit Risk, RRE, CRE, Climate Change Risk, Systemic Risk, Macro-Prudential Policy, NBB

    Featured Experts
    Related Articles
    News

    BIS and Central Banks Experiment with GenAI to Assess Climate Risks

    A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe

    March 20, 2024 WebPage Regulatory News
    News

    Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures

    Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.

    March 18, 2024 WebPage Regulatory News
    News

    Singapore to Mandate Climate Disclosures from FY2025

    Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies

    March 18, 2024 WebPage Regulatory News
    News

    SEC Finalizes Climate-Related Disclosures Rule

    The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.

    March 07, 2024 WebPage Regulatory News
    News

    EBA Proposes Standards Related to Standardized Credit Risk Approach

    The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU

    March 05, 2024 WebPage Regulatory News
    News

    US Regulators Release Stress Test Scenarios for Banks

    The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).

    February 28, 2024 WebPage Regulatory News
    News

    Asian Governments Aim for Interoperability in AI Governance Frameworks

    The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.

    February 28, 2024 WebPage Regulatory News
    News

    EBA Proposes Operational Risk Standards Under Final Basel III Package

    The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.

    February 26, 2024 WebPage Regulatory News
    News

    EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS

    The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.

    February 23, 2024 WebPage Regulatory News
    News

    ECB to Expand Climate Change Work in 2024-2025

    Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.

    February 23, 2024 WebPage Regulatory News
    RESULTS 1 - 10 OF 8957