EBA Publishes Reports on Funding Plans and Asset Encumbrance of Banks
EBA published two reports examining the funding plans and asset encumbrance of banks in EU. For this assessment, 159 banks submitted their plans for funding over a forecast period of three years (2018 to 2020). The results of the assessment show that banks plan to match the asset side increase in the forecast years by a growth in client deposits as well as market-based funding.
The report on funding plans reveals that total assets are projected to grow, on average, by 6.2% by 2020. The main drivers for asset growth are loans to households and to non-financial corporates. Banks expect to increase client deposits and long-term debt funding while short-term debt and repo funding are expected to fall. The projected data shows a concentration of debt securities issuance in 2019 and 2020. Data also show that the spread between interest rates for client deposits and for loans to clients declined in 2017 and most banks expect the spread to decline even further in 2018. On the cost of funding, banks seem optimistic as they assume their costs of long-term market-based funding in 2018 will remain at 2017 levels. The report suggests that the evolution of banks' interest spread and market-based funding costs should be closely monitored, particularly for banks that are under pressure to increase profitability or without access to market-based funding at reasonable rates.
The report on asset encumbrance shows that in December 2017 the overall weighted average asset encumbrance ratio stood at 27.9%, compared to 26.6% in 2016. The modest increase of the encumbrance ratio is not an issue of immediate concern in the funding structure of EU banks. Additionally, repos, covered bonds, and over-the-counter derivatives are among the main source of asset encumbrance. Banks in countries that were more affected by the sovereign debt crisis still have high levels but have shown a decrease in the volume of encumbrance, which could reflect a general improvement in the funding situation in these countries. These reports aim to provide important information for EU supervisors to assess the sustainability of banks' main sources of funding of banks.
Related Links
Keywords: Europe, EU, Banking, Asset Encumbrance, Funding Plans, EBA
Previous Article
CFTC Proposes Amendments to Trade Execution Requirement Under CEARelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards