ESRB published its eighth annual report, which details its achievements and activities between April 01, 2018 and March 31, 2019. During this period, ESRB continued its close monitoring of sources of systemic risk in the European financial system and economy. The annual report highlights that the key identified risks financial stability are repricing of risk premia in global financial markets; weaknesses in balance sheets of banks, insurers, and pension funds; debt sustainability challenges in sovereign, corporate, and household sectors; and vulnerabilities in the shadow banking system and contagion to the wider financial system. Besides these key risks to financial stability, ESRB continued to work on the financial stability implications of climate change and technological developments, including systemic cyber risk.
The above-mentioned key identified risks formed the basis for the adverse macro-financial scenario that ESRB provided to EBA for the 2018 EU-wide banking sector stress test. These risks were also reflected in the adverse scenarios that were provided to EIOPA for the 2018 insurance sector stress test. The following are the key highlights other ESRB work during the year:
- Recommended reciprocation of national flexibility measures in Belgium, France, and Sweden, in addition to a materiality threshold for the systemic risk buffer in Estonia
- Provided the adverse market scenarios to EIOPA for third EU-wide stress test for Institutions for Occupational Retirement Provision (IORPs) and to ESMA for third EU-wide stress test for credit counterparties
- Continued to assess the financial stability implications of IFRS 9 and published two reports on the topic
- Contributed to the development of the macro-prudential policy framework by setting out initial considerations to support policymakers in preparing decisions
- Monitored macro-prudential measures adopted in EU and facilitated exchange of views among its members on such measures; there was a significant increase in the number of macro-prudential measures adopted over last as more than half of the countries in the European Economic Area took some macro-prudential policy action in 2018
- Identified options to further strengthen the macro-prudential framework for (re)insurance and reviewed the financial stability implications of central counterparty interoperability arrangements
- Took first step toward developing a common framework for a macro-prudential stance
Related Link: Annual Report (PDF)
Keywords: Europe, EU, Banking, Insurance, Reinsurance, Pensions, Macro-Prudential Policy, Systemic Risk, Stress Testing, Annual Report, IFRS 9, Shadow Banking, ESRB
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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