ESRB Report Reviews Macro-Prudential Policy in EU
ESRB published a report that examines developments in the macro-prudential policy framework in EU during 2020. The report notes that the key source of systemic risk in EU stems from the negative impact of the pandemic on economic activity and the resulting rising solvency pressures in the private sector. The report highlighted that banks have benefited from a variety of support measures but are facing deteriorating asset quality. Looking ahead, public support measures will need to shift from a defense of the pre-pandemic status quo to more targeted solutions that help viable companies to adjust to the post-pandemic world. Phasing out across-the-board measures is particularly warranted when these delay the recognition of loan losses.
The report also noted that policies could also attach higher importance to addressing the debt burden of viable but overindebted firms. Furthermore, member states should review and improve collateral enforcement procedures and strengthen the capacity of the judiciary to avoid bottlenecks. A swift adoption of the proposed EU Directive on credit servicers, credit purchasers, and the recovery of collateral (2018/63) would be helpful in simplifying extrajudicial collateral enforcement, reducing the cost of non-performing loan (NPL) resolution and removing obstacles for NPL sales to specialized credit purchasers. The negative impact of a further increase of provisions on bank capital also compounds the need to step up efforts to achieve higher operational efficiency, including through consolidation. To address the imminent challenges, banks need to recognize and provision for new NPLs early on and enhance their internal NPL management and resolution capacity. To ensure sufficient credit supply throughout the crisis, banks’ capital buffers need to be usable for banks to continue financing the economy and absorb losses, and macroprudential authorities have started discussing the lessons to be drawn from the impact of the COVID-19 crisis on the buffer framework.
In addition, ESRB has published its annual report, which describes its risk assessment and contributions to the macroprudential policy framework over the period April 01, 2020 to March 31, 2021. ESRB also published an issues note on money market funds, which sets out the ESRB’s analysis of systemic vulnerabilities in MMFs and preliminary policy considerations on how to reform MMFs. ESRB will further analyze a range of issues, including the wider markets in which MMFs operate, the behavior and expectations of investors in MMFs, as well as the structure of MMFs and the liquidity management tools available to them, with a view to adopting a Recommendation by the end of 2021. Finally, ESRB released its quarterly risk dashboard at its June Board meeting.
Related Links
- Press Release
- Report on Macro-Prudential Policy (PDF)
- Annual Report (PDF)
- Press Release on Issue Note on MMFs
- Issue Note on MMFs (PDF)
Keywords: Europe, EU, Banking, Systemic Risk, COVID-19, Macro-Prudential Policy, Residential Real Estate, Credit Risk, NPLs, Risk Dashboard, Annual Report, Money Market Funds, Guarantee Scheme, ESRB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Blake Coules
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.
Previous Article
ECB/ESRB Report Shows Uneven Climate Change Impact Across EURelated Articles
ESAs Issue Multiple Regulatory Updates for Financial Sector Entities
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
EBA Finalizes Methodology for Stress Tests, Issues Other Updates
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
OSFI Sets Out Work Priorities and Reporting Updates for Banks
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
APRA Finalizes Changes to Capital Framework, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
BIS Hub and Central Banks Conduct CBDC and DeFI Pilots
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)
