2015年-EBA欧洲银行管理局_JC_2015_007_JC_Report_on_Risks_and_Vulnerabilities_in_the_EU_Financial_System_15页_802kb

Summary of the Joint Committee Report on Risks and Vulnerabilities in the EU Financial System (March 2015)

Core Content

This report outlines the key risks and vulnerabilities facing the EU financial system as of March 2015, emphasizing both macroeconomic and operational challenges. It highlights the ongoing impact of weak economic growth, low inflation, and a prolonged low-interest rate environment, which have intensified financial risks and prompted changes in the behavior of financial institutions. Additionally, it addresses the regulatory landscape and the progress made in improving financial stability and transparency.

Main Points

1. Macro Risks

• Weak Economic Growth and Low Inflation:
  The EU economy continued to grow slowly, with a forecast of 1.5% for 2015. Inflation in the euro area and the EU remained low, with the EU-wide inflation rate at -0.2% in December 2014. Deflationary pressures persisted, impacting asset quality and financial stability.

• Search for Yield:
  In a low-interest rate environment, investors are seeking higher returns, leading to increased risk-taking. This behavior is evident in the continued decline of corporate bond yields and the shift of insurers towards higher-yield, lower-quality bonds. The search for yield has also led to increased volatility in asset prices and heightened liquidity risks.

• Impact on Financial Entities:
  Banks and insurers face pressure on profitability due to low interest rates and the need to manage increased credit and operational risks. The EU-wide stress test and Comprehensive Assessment have improved market confidence and transparency, but challenges remain, especially in asset quality and capital adequacy.

• Exchange Rate Volatility:
  The depreciation of the euro against the US dollar and the uncertainty around future exchange rates have added to economic and financial instability. This is particularly challenging for banks with significant foreign currency exposures.

• Commodity Price Fluctuations:
  Energy and precious metal prices have fluctuated, with falling energy prices reinforcing deflationary tendencies and affecting the profitability of EU banks.

• Structural Frictions:
  The financial system's structural issues, such as low investment and weak credit growth, continue to hinder economic recovery. The relationship between economic growth and banking system performance has strengthened over the past 15 years.

• Deleveraging Trends:
  The overall deleveraging of EU banks has slowed, with slight increases in gross loan volumes and total assets. However, risk-weighted assets (RWA) have continued to decrease, indicating a de-risking process. The EBA is working to ensure consistency in RWA calculations across the EU.

• Asset Quality Concerns:
  The weighted average ratio of impaired and past due loans to total loans remained at a high level (6.6%), and the first EU-wide application of the harmonized definition of non-performing loans (NPL) revealed a significant increase in NPLs (EUR 136 billion or +18.4%). Corporate and real estate portfolios were particularly affected.

• Profitability Pressures:
  Banks and insurers experienced declining profitability, with the weighted average Return on Equity (RoE) for EU banks falling from 7.5% to 5.4% between March and September 2014. Insurance companies also faced margin compression, prompting a review of their business models.

2. Operational Risks

• Business Conduct Risk:
  Concerns over misconduct in financial institutions remain high, with increased litigation and redress costs. This has led to a withdrawal from certain markets and the need for improved governance and supervision.

• IT and Cyber Risks:
  IT-related operational risks have risen due to cost pressures, outsourcing, and an increase in cyber-attacks. The integration of IT risk into overall risk management is still in progress.

• Benchmark and Market Transparency:
  The integrity and continuity of financial benchmarks remain a concern. The EU has made progress in benchmark reforms, but more work is needed to ensure transparency and stability in financial markets.

3. Regulatory Context

• Legislative Progress:
  Several key pieces of legislation were finalized or significantly advanced in 2014 and early 2015, including the ELTIF Regulation, PRIIPS Regulation, and the Fourth Anti-Money Laundering Directive.

• Capital Market Union (CMU):
  The CMU initiative aims to diversify funding sources and improve financial stability by reducing regulatory arbitrage. It is expected to promote more market-based funding and attract international investors.

• Supervisory Reforms:
  The three European Supervisory Authorities (ESAs) are working to harmonize regulatory frameworks and develop consistent supervisory practices. This includes the implementation of the CRDIV/CRR package, the recovery and resolution framework, and the preparation for Solvency II in the insurance sector.

• Solvency II and Asset-Liability Management:
  EIOPA is finalizing guidelines and technical standards for Solvency II, focusing on all three pillars of the regulation. The insurance sector is advised to improve asset-liability management and risk management practices, especially in the context of low interest rates.

4. Key Recommendations

• Continued Monitoring of Business Models:
  Financial institutions should be monitored for changes in business models, especially in the context of de-risking and de-leveraging.

• Enhanced Supervision:
  Supervisors should remain vigilant regarding systemic risks, including concentration risks and regulatory arbitrage, that may arise from increased market-based intermediation activities.

• Integration of IT Risk:
  Systematic integration of IT risk into overall risk management is recommended to ensure resilience against cyber threats.

• Stress Testing and Regulatory Harmonization:
  Adequate inclusion of misconduct costs in future stress tests and further progress towards benchmark reforms are needed to improve the stability of the financial system.

• Promotion of Sound Business Models:
  Legislative measures should support the development of sound and innovative business models, while ensuring proper risk regulation and supervision.

Key Information

• Economic Outlook: The EU economy showed cautious improvement in 2015, but deflationary tendencies and low growth persist.
• Interest Rate Environment: Low interest rates have reinforced the search for yield and increased financial risks.
• Asset Quality and Liquidity: Banks and insurers face significant challenges in maintaining asset quality and liquidity, especially in a low-interest environment.
• Regulatory Progress: The EU has made strides in regulatory harmonization and transparency, but further reforms are necessary to address systemic risks.
• Operational Risks: IT and business conduct risks are significant, with the need for better integration into risk management frameworks.

Conclusion

The EU financial system continues to face substantial macroeconomic and operational risks, driven by weak growth, low inflation, and a prolonged low-interest rate environment. While regulatory reforms and stress tests have improved transparency and confidence, the need for continued vigilance and proactive measures remains critical to ensure financial stability and resilience.