1166

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Tailoring prudential policy to bank size. The application of proportionality in the US and euro area

13-10-2021

All jurisdictions tailor their prudential policies to bank size, with generally more complex – though not necessarily more stringent – requirements for larger banks. This paper compares such policies in the euro area and United States, in the context of the differences in banking system structures and legal frameworks. There are vastly more stand-alone smaller banks and credit unions in the US than in the euro area. The US approach to prudential requirements is generally more differentiated by bank ...

All jurisdictions tailor their prudential policies to bank size, with generally more complex – though not necessarily more stringent – requirements for larger banks. This paper compares such policies in the euro area and United States, in the context of the differences in banking system structures and legal frameworks. There are vastly more stand-alone smaller banks and credit unions in the US than in the euro area. The US approach to prudential requirements is generally more differentiated by bank size than the euro area’s, but the US has a more uniform framework for bank crisis management and resolution. Given the permanence of cross-border fragmentation and overbanking in the euro area, further size-based policy differentiation would be ill-advised.

External author

A. Lehmann, N. Véron- Bruegel

Review of the crisis management and deposit insurance framework -Summary of some related issues

11-10-2021

In February 2021, the Commission launched a consultation that sought to gather stakeholders’ experience with the current crisis management and deposit insurance framework as well as their views on the revision of the framework. The results of that consultation were published in a summary report. As the experience with the application of the current framework indicates that some adjustments may be warranted, this briefing summarises some of the underlying issues.

In February 2021, the Commission launched a consultation that sought to gather stakeholders’ experience with the current crisis management and deposit insurance framework as well as their views on the revision of the framework. The results of that consultation were published in a summary report. As the experience with the application of the current framework indicates that some adjustments may be warranted, this briefing summarises some of the underlying issues.

Public hearing with A. Enria, Chair of the ECB Supervisory Board ECON on 14 October 2021

11-10-2021

This note is prepared in view of a regular public hearing with the Chair of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, which will take place on 14 October 2021. The briefing addresses: 1) Emerging risks in the banking group, as presented to the Eurogroup, 2) results of EBA’s and ECB’s 2021 stress test exercises, 3) the Basel Committee report on early lessons from the Covid-19 pandemic on the Basel reforms, 4) the ECB report on sanctioning activities, 5) the ECB Supervisory ...

This note is prepared in view of a regular public hearing with the Chair of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, which will take place on 14 October 2021. The briefing addresses: 1) Emerging risks in the banking group, as presented to the Eurogroup, 2) results of EBA’s and ECB’s 2021 stress test exercises, 3) the Basel Committee report on early lessons from the Covid-19 pandemic on the Basel reforms, 4) the ECB report on sanctioning activities, 5) the ECB Supervisory Banking Statistics for the first quarter 2021, and 6) summaries of external papers on long-term effects of the pandemic on the banking sector.

Preventing money laundering in the banking sector - reinforcing the supervisory and regulatory framework

30-09-2021

This paper provides an overview of current initiatives and actions aiming at reinforcing the anti-money laundering (AML) supervisory and regulatory framework in the EU, in particular from a Banking Union perspective. This briefing first outlines the EU framework for fighting money laundering, which includes legislation (most notably the 5th AML Directive) and a number of Commission and Council Action Plans. Secondly, an overview of AML prevention relevant authorities, at both the EU and national ...

This paper provides an overview of current initiatives and actions aiming at reinforcing the anti-money laundering (AML) supervisory and regulatory framework in the EU, in particular from a Banking Union perspective. This briefing first outlines the EU framework for fighting money laundering, which includes legislation (most notably the 5th AML Directive) and a number of Commission and Council Action Plans. Secondly, an overview of AML prevention relevant authorities, at both the EU and national level, is provided. This section also explains the 2019 review of the founding regulations of the European Supervisory Authorities, through which competences relating to preventing AML in the financial sector were consolidated within the European Banking Authority. Lastly, the paper highlights the latest proposed changes to the AML framework, as proposed by the Commission in their AML package published in July 2021. It is relevant to note that this briefing focuses on AML concerns in the banking sector. While financial and non-financial intermediaries have an important role to play, these are not the focus of this briefing. Nevertheless, reference is made to closely related areas (notably, to Financial Intelligence Units, the work of markets and insurance supervisors on preventing AML and related matters) when relevant to a better understanding of its impacts on the banking sector. This paper builds on and updates a previous EGOV briefing on the same topic.

European Banks’ Response to COVID-19 “Quick Fix” Regulation and Other Measures

30-09-2021

The original full study presents data from 27 banking groups in 10 EU Member States, where it is found that banks have used COVID-19 relief measures extensively, with some cross-country differences as for the intensity of use. Flexibility in risk classification does not seem to have impaired banks’ ability to report and recognise risk properly, even for loans under moratoria. The findings suggest that the impact of the measures on banks’ credit supply has been overall positive and mainly driven ...

The original full study presents data from 27 banking groups in 10 EU Member States, where it is found that banks have used COVID-19 relief measures extensively, with some cross-country differences as for the intensity of use. Flexibility in risk classification does not seem to have impaired banks’ ability to report and recognise risk properly, even for loans under moratoria. The findings suggest that the impact of the measures on banks’ credit supply has been overall positive and mainly driven by capital-enhancing measures such as the “Quick fix”.

External author

Brunella BRUNO and Filippo DE MARCO

What if the internet failed?

27-09-2021

What if the internet failed? Since the 1960s, when work on its development began, internet infrastructure has become almost as important as the electricity and transport infrastructure in modern societies. More and more key services, such as banking, food retail and health care, rely on internet connections. Despite the internet's original resilient decentralised design, the increasing importance of a few central players and the shift towards greater centralisation have made the internet more susceptible ...

What if the internet failed? Since the 1960s, when work on its development began, internet infrastructure has become almost as important as the electricity and transport infrastructure in modern societies. More and more key services, such as banking, food retail and health care, rely on internet connections. Despite the internet's original resilient decentralised design, the increasing importance of a few central players and the shift towards greater centralisation have made the internet more susceptible to failure. This would have severe repercussions: people would not be able to withdraw cash or pay by card, supermarkets and large retailers would not be able to bill and sell products, and managing digital certificates (such as the Covid-19 vaccination certificate) would no longer be possible.

Update on recent banking developments

23-09-2021

This briefing summarises recent publications that are particularly relevant in the context of bank supervision, namely: 1) the Basel Committee Interim report on early lessons from the Covid-19 pandemic on the Basel reforms, 2) the EBA peer review report on the prudential assessment of the acquisition of qualifying holdings, 3) the ECB Supervisory Banking Statistics for the first quarter 2021, and 4) the EBA report on High Earners.

This briefing summarises recent publications that are particularly relevant in the context of bank supervision, namely: 1) the Basel Committee Interim report on early lessons from the Covid-19 pandemic on the Basel reforms, 2) the EBA peer review report on the prudential assessment of the acquisition of qualifying holdings, 3) the ECB Supervisory Banking Statistics for the first quarter 2021, and 4) the EBA report on High Earners.

Rise in Inflation: Temporary or Sign of a More Permanent Trend?

14-09-2021

Inflation in the euro area, as measured by the harmonised index of consumer prices (HICP), has risen to 3% in August 2021. According to the latest projections, the European Central Bank (ECB) expects inflation to increase further in the fourth quarter, and then decline to 1.7% (2022) and 1.5% (2023), well below its medium-term target of 2%. Will the current increase of inflation truly be short-lived because it is driven by temporary factors? Or has, after years of persistently low inflation, the ...

Inflation in the euro area, as measured by the harmonised index of consumer prices (HICP), has risen to 3% in August 2021. According to the latest projections, the European Central Bank (ECB) expects inflation to increase further in the fourth quarter, and then decline to 1.7% (2022) and 1.5% (2023), well below its medium-term target of 2%. Will the current increase of inflation truly be short-lived because it is driven by temporary factors? Or has, after years of persistently low inflation, the disruption caused by COVID-19 ushered in a period of more sustained inflationary pressure? Five papers were prepared by the ECON Committee’s Monetary Expert Panel, looking into the drivers of the current rise in inflation, factors likely to influence the medium-term path of inflation, and implications for monetary policy. This publication is provided by Policy Department A for the Committee on Economic and Monetary Affairs (ECON), ahead of the Monetary Dialogue with ECB President Lagarde on 27 September 2021.

External author

Christophe BLOT, Caroline BOZOU, Jérôme CREEL, Kerstin BERNOTH, Gökhan IDER, Karl WHELAN, Joscha BECKMANN, Klaus-Jürgen GERN, Philipp HAUBER, Nils JANNSEN, Ulrich STOLZENBURG, Luigi BONATTI, Roberto TAMBORINI

The Tail Wagging the Dog? Overcoming Financial Dominance

13-09-2021

The idea of financial dominance has gained some notoriety in recent years as a further constraint on central bank policymaking. This paper examines the reality of financial dominance and how the financial sector may be an impediment to the necessary unwinding of all unconventional monetary policies in Europe. In line with the existing literature, I conclude that the financial sector has been made more vulnerable as a result of quantitative easing – and allowing the financial tail to wag the monetary ...

The idea of financial dominance has gained some notoriety in recent years as a further constraint on central bank policymaking. This paper examines the reality of financial dominance and how the financial sector may be an impediment to the necessary unwinding of all unconventional monetary policies in Europe. In line with the existing literature, I conclude that the financial sector has been made more vulnerable as a result of quantitative easing – and allowing the financial tail to wag the monetary dog will lead to only more vulnerability. This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 27 September 2021.

External author

Christopher A. HARTWELL

What About Policy Normalisation?

13-09-2021

As the ECB follows the time-honoured inflation targeting strategy, it runs the risk of, once more, failing to normalise its policy in time for the next unexpected shock. With interest rates at their lower bounds and facing historic uncertainty that undermines its policy effectiveness, a strong case can be made for developing a Plan B. This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs ...

As the ECB follows the time-honoured inflation targeting strategy, it runs the risk of, once more, failing to normalise its policy in time for the next unexpected shock. With interest rates at their lower bounds and facing historic uncertainty that undermines its policy effectiveness, a strong case can be made for developing a Plan B. This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 27 September 2021.

External author

Charles WYPLOSZ

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