ESRB published a report of the Advisory Scientific Committee (ASC) on approaching nonperforming loans (NPLs) from a macro-prudential angle. This ASC report is intended to contribute to the mandate assigned to ESRB, by elaborating on the foundations for policy action in the NPL domain and some of the key elements and principles relevant for designing the policy package from a macro-prudential perspective.
The report first identifies the imperfections (externalities, economies of scale and coordination failures, institutional distortions and moral hazard vis-à-vis the safety net) that call for policy action in relation to the NPL problem. Special emphasis is placed on the mechanisms that can turn this into a macro-prudential problem. The report then establishes a mapping between the imperfections identified and the list of potential preventive and corrective policies in relation to NPLs and discusses the policy trade-offs that are relevant from a macro-prudential perspective. It concludes with a further elaboration of the trade-offs and policies that need to be taken into account in determining the optimal speed and form of resolution of NPLs once they have been accumulated.
The accumulation of NPLs on the balance sheets of EU banks in the aftermath of the global financial crisis has caught the attention of European authorities in the last few years. NPLs become an issue of macro-prudential concern if they are a source of systemic risk and a threat to financial stability. The policy considerations in this report are meant to contribute to the ongoing policy discussions and should not be regarded as specific proposals for formal ESRB warnings or recommendations.
Related Link: Report (PDF)
Keywords: Europe, EU, Banking, NPLs, Macro-Prudential Policy, Systemic Risk, ESRB
Previous ArticleFED Consults on Rule Establishing Risk-Based Categories for Banks
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.