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Overly reliant on central bank funding?

Задълбочен анализ 30-10-2023

Following the gradual demise of TLTROs, the banking sector as a whole does not appear overly reliant on Central bank funding. Excess liquidity with the ECB remains abundant and banks enjoy a large cushion of unencumbered government bonds to be used in secured borrowing. They have also increased outstanding debt securities, although at a cost that has hugely increased since early 2022. Private-sector deposits, after returning to pre-Covid levels, remained roughly stable, as banks prioritised short-term ...

The future of ECB liquidity policy

Задълбочен анализ 15-09-2023

The ECB is reducing its sovereign bond holdings and needs to consider the appropriate size of its balance sheet over the longer-term and the best operational framework for supplying liquidity to the banking system. This paper recommends the ECB substantially reduce its balance sheet but should maintain an ample reserves approach by keeping its full allotment policy for refinancing operations. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee ...

While greater inflation may have led to some positive “first-round” effects for banks, several negative “second-round” impacts may occur, including: i) an increase in credit risk, affecting both families and companies, especially “heavy energy users”; ii) a drop in the value of fixed-rate assets held by lenders, including sovereign bonds; iii) liquidity pressures due to the ECB’s recent decision to increase the cost of its outstanding 3-year facilities and to greater competition for retail deposits ...

This paper documents the relevance of Institutional Protection Schemes (IPSs) in the European banking market, and it discusses some drawbacks of the current practice of recognizing some IPSs as a deposit guarantee scheme as well as possible options for regulatory reform.

This note is prepared in view of an ordinary public hearing with the Chair of the Single Resolution Board (SRB), Elke König, which will take place on 1 July 2021. The Chair will present the SRB’s annual report for 2020. This briefing addresses (i) the review of the crisis management framework, and in particular the SRB’s input to the Commission’s public consultation; (ii) MREL policy and statistics; (iii) liquidity in resolution; (iv) the relationship with the United Kingdom: contractual recognition ...

When and how to unwind COVID-support measures to the banking system?

Задълбочен анализ 12-03-2021

This in-depth analysis proposes ways to retract from supervisory COVID-19 support measures without perils for financial stability. It simulates the likely impact of the corona crisis on euro area banks’ capital and predicts a significant capital shortfall. We recommend to end accounting practices that conceal loan losses and sustain capital relief measures. Our in-depth analysis also proposes how to address the impending capital shortfall in resolution/liquidation and a supranational recapitalisation ...

In the past decade, asset management companies (AMCs) have been an effective tool for relieving banks of large portfolios of non-performing loans (NPLs). Managed over time, AMCs can reduce the financial burden on the overall system. This paper is based on the existing literature and EU experiences of national AMCs created in the aftermath of the global financial crisis. It discusses the advantages and disadvantages of using AMCs, and considers the key elements in their design.

When and how to unwind COVID-support measures to the banking system?

Задълбочен анализ 09-03-2021

Designing exit strategy requires judgment, coordination among different institutions, and graduality. Restoring banks’ balance sheet transparency is a first-order objective. To this end, borrower relief measures should be phased out ahead of the other measures. Relaxation of loan classification and provisioning policies can be lifted in a second stage. The last one to be unwounded would be capital relief initiatives. To provide banks time and space of manoeuvre, exit strategies needs to be communicated ...

In response to the COVID-19 pandemic and the severe recession it has produced, the ECB Governing Council has adopted, since March 2020, an extraordinary set of monetary policy measures aimed at preserving favourable financing conditions and safeguarding price stability in the face of high uncertainty. The monetary policy instruments were recalibrated in the course of 2020, lastly in December 2020. Four papers were prepared by the ECON Committee’s Monetary Expert Panel, discussing the effectiveness ...

This briefing gives an overview of measures proposed by the Financial Stability Board, the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors to address the COVID-19 pandemic related financial consequences.