ECB published Issue 7 of the Macroprudential Bulletin, which provides insight into the ongoing work of ECB in the field of macro-prudential policy. The Bulletin presents an overview of the macro-prudential policy measures that are being implemented in euro area countries as of January 01, 2019. Additionally, this issue includes four articles on key macro-prudential topics, including an assessment of bank regulatory reforms ten years after the crisis, results from the new macro-prudential stress test framework, macro-prudential analysis of residential real estate markets, and analyses of the recent decisions on the countercyclical capital buffer (CCyB).
Post-crisis bank resilience. The first article investigates whether the euro area banking system is more resilient ten years after the global financial crisis. It compares the ability of euro area banks to absorb potential shocks before the 2008 global financial crisis and ten years later, taking into account the impact of post-crisis reforms on bank capital and loss-absorbing capacity, including the new, post-crisis resolution framework. The analysis shows a significant increase in the ability of the euro area banking system to withstand potential shocks without costs for taxpayers after the global financial crisis and the post-crisis wave of reforms. This has been achieved through higher regulatory capital and the new resolution framework, which includes the bail-in tool and the potential intervention of the Single Resolution Fund, as well as a significant reduction in the average probability of default of banks. Notwithstanding the significant increase in the average level of resilience in the euro area banking system, the post-crisis regulatory work is not yet complete. Recent and outstanding regulatory reforms, particularly the finalization of the Basel III package and the minimum requirement for own funds and eligible liabilities (MREL) requirements, should be properly implemented to further strengthen the resilience of banks, especially outlier institutions.
Results from macro-prudential stress test. The second article summarizes the results of the macro-prudential stress test of the euro area banking sector in 2018-2020 and assesses the resilience of the European banking sector’s resilience, if faced with a global economic recession. The results indicate substantial resilience of the euro area banking system at the current juncture. The macro-prudential stress test predicts a lower negative impact on capital ratios, though higher capital depletion, in billions of euro, than a static balance-sheet stress test. They also show that bank deleveraging tied to deteriorating capitalization and asset quality leads to further deterioration in economic conditions in an adverse scenario.
Macro-prudential analysis of residential real estate markets. The third article presents ECB framework for assessing financial stability risks stemming from residential real estate markets and for designing macro-prudential policy responses. It also reviews recent developments in residential real estate markets and policy initiatives to address risks. The current analysis indicates that residential real estate vulnerabilities relevant to macro-prudential policy are present in a number of euro area countries. In general, over the past years, the activation of macro-prudential instruments related to residential real estate risks recognizes the need for a proactive policy stance to avoid possible negative consequences for the financial sector and the broader economy. However, the continuation of observed trends in residential real estate markets in some countries suggests that further policy actions remain warranted in the near future.
Analysis of CCyB decisions. The fourth article reviews the country-specific strategic choices and decisions regarding timing and calibration of CCyB in countries participating in the Single Supervisory Mechanism (SSM). It sheds light on the causes of the different policy choices and exposes limitations encountered in the prominent role of the credit-to-GDP gap in the current Basel framework. Ultimately, assessing risks across euro area countries consistently, while taking into account country-specific factors, supports the effective use of CCyB as a macro-prudential instrument and ensures that similar risk exposures are subject to the same set of macro-prudential requirements. The consistent use of additional risk indicators over time and across countries can help make macro-prudential policy more predictable.
Keywords: Europe, EU, Banking, Post-Crisis Reforms, Macroprudential Bulletin, CCyB, Residential Real Estate, Stress Testing, Macroprudential Policy, ECB
Previous ArticleSBIF Issues Instructions for Reporting of Credit Limits
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).