European Banking Authority

EBA Publishes First Risk Dashboard of EU Banking Sector

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On October 29, the European Banking Authority (EBA) published its first risk dashboard, summarizing the main risks and vulnerabilities in the EU banking sector.

It is based on data from the second quarter of 2013 and takes into consideration the evolution of a set of key risk indicators from 56 EU banks that the EBA has been collecting, on a quarterly basis, since 2009.

The accompanying press release states that after the past two years of repair, the overall conditions of EU banks have improved.  In particular, data in the EBA dashboard illustrates that capital positions have been significantly strengthened and that funding conditions have recovered.  Risk Dashboard.  Press Release.

EBA Publishes First Risk Dashboard of EU Banking Sector

Posted on

On October 29, the European Banking Authority (EBA) published its first risk dashboard, summarizing the main risks and vulnerabilities in the EU banking sector.

It is based on data from the second quarter of 2013 and takes into consideration the evolution of a set of key risk indicators from 56 EU banks that the EBA has been collecting, on a quarterly basis, since 2009.

The accompanying press release states that after the past two years of repair, the overall conditions of EU banks have improved.  In particular, data in the EBA dashboard illustrates that capital positions have been significantly strengthened and that funding conditions have recovered.  Risk Dashboard.  Press Release.

European Banking Authority Publishes Responses to Consultation Paper on the Definition of Material Risk Takers for Remuneration Purposes

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The European Banking Authority (EBA) published a list of responses received to its May 2013 consultation paper on draft regulatory technical standards on criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk.  The RTS, if implemented, would widen the definition of staff subject to the most stringent pay regulation, including for the purposes of the CRD IV bonus cap.  The responses are available on the EBA website.  Website.

EBA Report on Risks and Vulnerabilities of the EU Banking System

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On July 17, the European Banking Authority (EBA) published a report on risks and vulnerabilities of the EU banking system.  The report considered EBA key risk indicators and EBA risk assessment questionnaires for banks and market analysts.  The report highlighted the following:

  • Increasing uncertainty about the quality of banks’ assets and valuation.
  • Significant strategic and implementation challenges. This includes the CRD IV reforms and proposals to establish a single supervisory mechanism for banking union member states.
  • Detrimental business practices of EU banks such as product misselling and failures regarding rate benchmark setting.  This will require heightened supervisory oversight and improvements in institutions’ risk management functions, compliance procedures and risk culture to improve consumer relationships with banks.  Report.

EBA Provides Information on Single Banking Rulebook Q&As

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On May 31, the European Banking Authority (EBA) updated its single banking rulebook questions and answers (Q&As) webpage and also published a paper that provides background and guidance on the Q&A process.

The EBA has stated that it believes that the Q&As will be a key feature in contributing to the single rulebook on banking regulation.  The Q&As will provide supervisory guidance and ensure a consistent and effective application of the banking regulatory framework.  The process envisages an ongoing dialogue between the EBA and the European Commission to ensure that responses to the questions submitted remain fully consistent with the EU legislative texts.  The EBA will only start processing questions on implementation of CRD IV or the related technical standards once the final legislative texts are published in the Official Journal of the European Union (OJ).  Webpage.  Paper.

EBA Issues Good Practices for Banks’ ETF Risk Management

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On March 7, the European Banking Authority (EBA) issued an opinion addressed to National Supervisory Authorities (NSAs) on good practices for credit institutions in their risk management of exchange traded funds (ETFs).

The EBA’s opinion aims to assist bank supervisors in assessing risk when participating in ETF businesses, by setting out high level descriptions of non binding good practice and guidance in relation to managing the key risks encountered by credit institutions.  The opinion specifically focuses on funding requirements and liquidity, credit risk and collateral management and market risk.  The EBA has noted that how credit institutions choose to implement good practice will differ depending on their individual characteristics and their exact involvement with ETFs.

European Banking Authority: Final Report on the Recapitalisation of EU Banks

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On October 3, the European Banking Authority (EBA) published its final report on the recapitalisation of EU banks.  It also published a set of accompanying questions and answers.  The report confirms that, as of end-June 2012, the majority of the banks within the sample have reached the required 9% core tier 1 ratio, which was first recommended to national supervisory bodies by the EBA in December 2011.  Meeting the required ratio has led to a €115.7 billion recapitalisation of 27 banks across the EU.

The report also includes an announcement that the EBA will issue a new capital conversion recommendation once proposals relating to the fourth Capital Requirements Directive (CRD IV) have been finalised.  This will require that banks maintain a nominal amount of core tier 1 capital which corresponds to the end-June 2012 level of 9%.  Banks will be permitted to go below the required level of capital in only certain limited circumstances, such as de-risking or restructuring.  The ECB will also require that banks submit plans to their supervisory authority explaining how they will implement CRD IV.

EBA Publishes Opinion on Green Paper on Shadow Banking

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On July 17, the European Banking Authority (EBA) published its opinion on the European Commission’s green paper on shadow banking. Opinion. The opinion focuses on several key areas, including the following:

  • The definition of shadow banking- The EBA agrees with the definition of shadow banking proposed in the Financial Stability Board’s recommendations in April 2011. Recommendations.
  • Functional approach – The EBA recognised that shadow banking has beneficial effects on the financing of the real economy and can help to foster growth. However, there are functional risks which need to be properly regulated. The EBA classifies these risks as liquidity and maturity transformations, interconnectivity and excessive leveraged positions set up by shadow entities or instruments.
  • Large exposures – The EBA believes that the large exposures regime should act as a backstop regime to “shadow activities” and tackle the risk of interconnectivity by ensuring that interconnections are duly identified.
  • Regulatory arbitrage – The EBA stands ready to prevent regulatory arbitrage and assess the need for regulation ability. The risks of regulatory arbitrage could increase as a response to the overhaul of the ongoing requirements under Basel III.

EBA Report on Risks and Vulnerabilities of the EU Banking System

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On the July 12, the European Banking Authority (“EBA”) published its first annual report on the risks and vulnerabilities of the EU banking system in 2011.

The report states that the situation in mid-2012 remains extremely fragile, with increasing uncertainty on asset quality, funding capacity and concerns over possible extreme events. Banks and supervisors are considering putting emergency actions in place. The report also highlights sovereign risk and funding and liquidity risk as significant risks in the short term. Annual Report.

EU Commission to Publish Proposals for a European Bank Recovery and Resolution Framework on 6 June 2012

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The European Commission has published an agenda which, inter alia, states that it will present its legislative initiative for a new European framework for bank recovery and resolution on 6 June 2012. Agenda.

According to the agenda, key elements of the proposal are:

– The framework will primarily be based on preventing and reducing the risk of failure. The powers of the European supervisory authorities (ESAs) will be expanded so that they can intervene at an early stage before problems in a bank become critical and its financial situation deteriorates irreparably.

– The proposal will ensure that national authorities and the European Banking Authority (EBA) have the appropriate co-ordination tools to ensure coherent procedures. This is particularly important in the context of cross-border banking groups.

– The framework will provide for credible resolution tools when a bank is no longer viable and allowing it to go bankrupt would be disruptive for essential financial services and overall stability. These tools will include bail-in measures (the power to convert or write down the debt of failing banks).

– To be effective, sufficient funds should be available to finance resolution, for example to issue guarantees or provide short term loans to help a newly set up bridge bank to operate. Such funds would only serve to ensure the continuity of critical functions and not to bail out troubled institutions.