2014年-EBA欧洲银行管理局_ESAs_joint_risk_report_autumn_2013_final_33页_857kb

Summary of the Joint Committee Report on Risks and Vulnerabilities in the EU Financial System (August 2013)

Core Content

The European financial system faces a range of interrelated and cross-sectoral risks, particularly in the context of a weak macroeconomic outlook and prolonged low interest rates. These risks have been identified as a significant challenge to financial stability, and the report highlights the need for coordinated regulatory and policy responses to address them effectively.

Main Risks and Vulnerabilities

1. Risks from a weak macro-economic outlook

• Economic Downturn: The macroeconomic outlook has worsened since the previous report, with the IMF projecting a continued recession for the Euro Area in 2013.
• Banking Sector Challenges:
  • Asset Quality: Loan portfolios, especially SME, residential mortgage, and commercial mortgage, continue to deteriorate.
  • Profitability: Deteriorating asset quality and compressed net interest margins due to low interest rates are putting pressure on profitability.
  • Funding Risks: Banks remain vulnerable to sudden shifts in sentiment and spread reversals, despite some improvements in market confidence.
• Insurance Sector:
  • Premium Growth: Declining premium growth in the life insurance sector persists, while non-life insurance shows some positive year-on-year growth.
  • Solvency I: Solvency I ratios have improved, but they do not reflect market value, which may be more volatile under Solvency II.
• Market Implications: The weak economic environment affects capital allocation and creates distortions in credit pricing, especially across EU member states.

2. Risks from prolonged low interest rates

• Impact on Banks:
  • Margin Pressures: Low interest rates compress net interest margins and increase funding costs.
  • Creditor Forbearance: Banks are increasingly extending forbearance, which may affect asset quality and provisioning.
• Impact on Insurers and Pension Funds:
  • Solvency Pressures: Low risk-free rates increase the present value of long-term liabilities, reducing solvency margins.
  • Reinvestment Returns: Depressed reinvestment returns further strain financial institutions.
• Market Behavior:
  • Search for Yield: Institutional investors are seeking higher returns, increasing risk-taking and leverage.
  • Collateral Demand: The search for yield has intensified the demand for collateral, contributing to potential scarcity and interconnectedness.

3. Risks of further fragmentation of the single market

• Market Clustering: Financial markets are becoming more fragmented, with the formation of two main clusters in sovereign debt markets.
• Cross-Border Lending: There is a material reduction in intra-EU cross-border lending to economies with sovereign stress or recession.
• Policy Response: The European Supervisory Authorities (ESAs) are working to reverse the trend through improved coordination and transparency.

4. Risks from increased use of collateral

• Collateral Shortages: Concerns about potential collateral shortages persist, especially if high-quality collateral is concentrated in a few institutions.
• Collateral Transformation: The re-use and transformation of collateral may increase interconnectedness and pro-cyclical effects.
• Transparency Issues: Lack of transparency in collateral valuation could complicate resolution processes for large financial institutions.

Key Issues and Recommendations

• Asset Quality Reviews: Conducting asset quality reviews before the implementation of the Single Supervisory Mechanism (SSM) is essential to ensure transparency and stability.
• Solvency II Implementation: Delays in Solvency II implementation continue to pose a risk for the insurance sector, as it lacks harmonised regulatory valuation rules.
• Financial Benchmarking: There is a concern about the quality and continuity of key financial benchmarks, which could lead to loss of investor confidence and increased costs.
• Operational Risks: Cyberattacks have highlighted the need for stronger operational risk management, with the emphasis on sound risk management rather than relying solely on capital requirements.
• Regulatory Coordination: The report stresses the importance of consistent regulatory frameworks across sectors to avoid regulatory arbitrage and promote financial stability.

Conclusion

The report underscores the need for continued vigilance and coordinated action across the EU financial sector to address the interlinked risks posed by weak economic conditions, low interest rates, market fragmentation, and operational vulnerabilities. It highlights the importance of strengthening transparency, improving regulatory frameworks, and ensuring resilience against both current and future economic shocks.