Featured Product

    IMF Issues Reports on Financial Sector Surveillance of the Euro Area

    July 19, 2018

    IMF issued reports presenting findings from the surveillance of financial sector policies in the Euro area. The published documents include the staff report and the selected issues report under the 2018 Article IV consultation, the financial system stability assessment (FSSA) report, and several technical notes under the Financial Sector Assessment Program (FSAP). The technical notes are on detailed assessment of observance (DAO) of Basel Core Principles for Effective Banking Supervision (BCPs); stress testing the banking sector; bank resolution and crisis management; systemic liquidity management; systemic risk analysis; insurance, investment firm, and macro-prudential oversight; and supervision and oversight of central counterparties (CCPs) and central securities depositories (CSDs).

    The FSSA reveals that the resilience of large euro area banks has improved, but important vulnerabilities remain. Capital buffers are, in aggregate, sizable relative to the immediate threats, but some banks are especially vulnerable to credit risk and others to market risks. The banking system has ample liquidity, against a backdrop of ECB support. Risks to financial stability relate mainly to tighter financial conditions, weaker growth, and policy and geopolitical uncertainties. The withdrawal of the United Kingdom from the EU (Brexit) could potentially disrupt financial market and services and thus the wider economy. Also, policy reversals could hurt debt sustainability and test the cohesion of policy making in EU. Overall, banking supervision in the euro area has improved significantly following the creation of the Single Supervisory Mechanism (SSM). A detailed assessment against BCPs finds that SSM has established its operational independence and effectiveness, intensifying supervision while harmonizing at a high level. SSM has also implemented sophisticated risk analysis in the process of setting capital targets for individual institutions.

    Nonetheless, banking supervision continues to face important challenges, mostly related to resources, liquidity risk, credit risk, and the fragmentation of national laws. Supervision would be more effective in case of more assured continuity in the assignment of suitable resources provided by national competent authorities. Gauging in real time the evolving capacity of a weak bank to cope with potential liquidity strains is essential. Addressing the persistence of nonperforming loans (NPLs) in some member countries must remain a supervisory priority. Beyond that, common definitions of NPL, minimum standards for insolvency and creditor rights, and rules for valuation of collateral would accelerate resolution of NPLs. Gaps and fragmentation in areas such as fit and proper criteria, major acquisitions, related party transactions, country risk, and sanctions need to be addressed while minimizing divergence at the national level. Divergences from international standards should also be eliminated. In addition, further efforts are needed to ensure effective coordination of prudential supervision with the oversight of anti-money laundering structures.

    The assessment highlights that financial oversight of the nonbank financial sector is likewise being strengthened. More centralized oversight of financial market infrastructure by ESMA and ECB is warranted, given the systemic nature of the entities involved. Macro-prudential policy will have to become more adept at addressing risks related to cross-border flows and nonbank sources of financing as the financial system evolves. Bank crisis preparedness and management have been substantially upgraded, but here too the regime remains fragmented. The adoption of the Bank Recovery and Resolution Directive (BRRD) and Single Resolution Mechanism Regulation (SRMR), along with the creation of the SSM and the Single Resolution Mechanism, provide a foundation for dealing with problem banks. The bank crisis preparedness and management framework faces significant transitional and structural challenges. A critical transitional challenge is the buildup of bail-in-able financing (known as MREL), which should be expedited, prioritizing large banks. Effective resolution will depend in part on the ready availability of adequate financial resources; thus, it is essential to make fully operational the Single Resolution Fund, to designate the European Stability Mechanism as its backstop, and establish a European Deposit Insurance Scheme (EDIS).

     

    Related Links

    Keywords: Europe, EU, Banking, Insurance, Securities, PMI, FSSA, Article IV, Technical Notes, FSAP, IMF

    Related Articles
    News

    SEC Finalizes Capital and Margin Requirements for Security-Based Swaps

    SEC adopted a package of rules and rule amendments to establish capital, margin, and segregation requirements for security-based swaps, under Title VII of the Dodd-Frank Act.

    August 22, 2019 WebPage Regulatory News
    News

    ECB Revises Prudential Provisioning Expectations for New NPEs

    ECB is revising its supervisory expectations for prudential provisioning of new non-performing exposures (NPEs) specified in the “Addendum to the ECB Guidance to banks on non-performing loans” (Addendum)

    August 22, 2019 WebPage Regulatory News
    News

    CFTC Proposes to Revise Information Collection on Margin Requirements

    CFTC is requesting comments on the burdens associated with certain aspects of the Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants (final rule).

    August 21, 2019 WebPage Regulatory News
    News

    FASB to Delay Effective Date for Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant all insurance companies that issue long-duration contracts, such as life insurance and annuities, additional time to apply the standard that addresses this area of financial reporting.

    August 21, 2019 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.9

    EBA published phase 2 of its technical package on the reporting framework 2.9, which includes validation rules, Data Point Model (DPM) data dictionary, and XBRL taxonomies.

    August 21, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Its Consultation Related to SME Financing

    FSB published responses received to the consultation on a report on the evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing.

    August 21, 2019 WebPage Regulatory News
    News

    APRA Revises Related Entities Standard for Banks

    APRA published a strengthened prudential standard APS 222 on associations with related entities, with the aim to mitigate contagion risk within banking groups.

    August 20, 2019 WebPage Regulatory News
    News

    EBA and ESMA Issue Joint Response to EC Letter on Crypto-Assets

    EBA and ESMA issued a joint response to the EC letter, from July 19, 2019, on crypto-assets.

    August 20, 2019 WebPage Regulatory News
    News

    FSB on Responses to Consultation on Wind-Down of Trading Portfolios

    FSB published responses received to the consultation on the solvent wind-down of the derivatives and trading book portfolio of a global systemically important bank (G-SIB).

    August 19, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Consultation on Resolvability Disclosures

    FSB published responses received to the consultation on disclosures for resolution planning and resolvability of banks.

    August 19, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3681