33

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Review of the European Market Infrastructure Regulation (EMIR): Updated rules on supervision of central counterparties (CCPs)

10-01-2020

The increasing importance of central counterparties (CCPs), and challenges such as the United Kingdom's withdrawal from the EU, call for a more comprehensive supervision of CCPs in EU and non-EU countries to secure financial market infrastructure and build confidence. In June 2017, the Commission proposed amendments to Regulation (EU) No 1095/2010 (ESMA – European Securities and Markets Authority) and Regulation (EU) No 648/2012 (EMIR – European Market Infrastructure), to strengthen the regulatory ...

The increasing importance of central counterparties (CCPs), and challenges such as the United Kingdom's withdrawal from the EU, call for a more comprehensive supervision of CCPs in EU and non-EU countries to secure financial market infrastructure and build confidence. In June 2017, the Commission proposed amendments to Regulation (EU) No 1095/2010 (ESMA – European Securities and Markets Authority) and Regulation (EU) No 648/2012 (EMIR – European Market Infrastructure), to strengthen the regulatory framework. Under the proposals, EU CCPs would be supervised by national authorities in agreement with ESMA, and third-country CCPs subject to different requirements depending on whether (or not) they are systemically important. Following trilogue negotiations, Parliament voted on the resulting agreement at its plenary session of 18 April 2019. The final act was signed on 23 October 2019 and entered into force on 1 January 2020. Third edition. The 'EU Legislation in Progress' briefings are updated at key stages throughout the legislative procedure.

Amending the bank resolution framework – BRRD and SRMR

28-06-2019

In May 2019, the European Parliament and the Council adopted the proposals amending the EU legislative framework on bank resolution, consisting of the Banking Recovery and Resolution Directive, and the Single Resolution Mechanism Regulation. Resolution is the restructuring of a bank which is failing or likely to fail, aiming at safeguarding continuity of the bank's critical functions, preserving financial stability and minimising rescue costs to taxpayers. The adopted amendments incorporate into ...

In May 2019, the European Parliament and the Council adopted the proposals amending the EU legislative framework on bank resolution, consisting of the Banking Recovery and Resolution Directive, and the Single Resolution Mechanism Regulation. Resolution is the restructuring of a bank which is failing or likely to fail, aiming at safeguarding continuity of the bank's critical functions, preserving financial stability and minimising rescue costs to taxpayers. The adopted amendments incorporate into EU law the Total Loss-Absorbing Capacity standard, set at international level to improve large financial institutions' capacity to absorb losses and recapitalise in case they are placed in resolution. The new legislative texts were published in the Official Journal on 7 June 2019, and come fully into force on 28 December 2020.

Minimum loss coverage for non-performing loans

20-05-2019

The recessions resulting from the financial crisis that broke out at the end of the last decade have caused economic difficulties for more and more EU companies and citizens in recent years, leaving them unable to repay their loans. As a result many EU banks have accumulated high volumes of non-performing loans (NPLs) on their balance-sheets. Although it has almost halved since December 2014, the ratio between NPLs and total loans extended by EU banks (the NPL ratio) remains historically high when ...

The recessions resulting from the financial crisis that broke out at the end of the last decade have caused economic difficulties for more and more EU companies and citizens in recent years, leaving them unable to repay their loans. As a result many EU banks have accumulated high volumes of non-performing loans (NPLs) on their balance-sheets. Although it has almost halved since December 2014, the ratio between NPLs and total loans extended by EU banks (the NPL ratio) remains historically high when measured against the ratios of other advanced economies. NPLs represent a risk to banks' balance sheets inasmuch as future losses they might generate are not sufficiently covered by appropriate reserves. To tackle this issue, in March 2018 the Commission adopted a comprehensive package of measures, including a proposal for a regulation amending the Capital Requirements Regulation (CRR) to introduce common minimum loss coverage levels (a 'statutory backstop') for newly originated loans that become non-performing. Following agreement on a text with the Council in trilogue, Parliament adopted the proposal in plenary on 14 March 2019. The final act was signed on 17 April 2019 and published in the Official Journal on 25 April 2019, coming into force the following day. Second edition. The 'EU Legislation in Progress' briefings are updated at key stages throughout the legislative procedure.

Credit servicers, credit purchasers and the recovery of collateral: Fostering secondary markets for non-performing loans (NPLs) and easing collateral recovery

12-02-2019

Due to the recessions brought about by the financial crisis from the end of the past decade, more and more EU companies and citizens have faced economic difficulties in recent years and have been unable to repay their loans. As a consequence, many EU banks have accumulated high volumes of non-performing loans (NPLs) in their balance-sheets. Although almost halved in comparison to December 2014, the ratio between NPLs and the total loans extended by EU banks (NPL ratio) remains historically high when ...

Due to the recessions brought about by the financial crisis from the end of the past decade, more and more EU companies and citizens have faced economic difficulties in recent years and have been unable to repay their loans. As a consequence, many EU banks have accumulated high volumes of non-performing loans (NPLs) in their balance-sheets. Although almost halved in comparison to December 2014, the ratio between NPLs and the total loans extended by EU banks (NPL ratio) remains historically high when measured against the ratios of other advanced economies. High levels of NPLs require banks to hold higher amounts of regulatory capital and pay a risk premium on liquidity markets, as a result of which their profitability and growth prospects diminish. To tackle this issue, a number of different initiatives have been adopted both at national and EU level. Within this context, in March 2018 the Commission adopted a comprehensive package of measures including a proposal for a directive aimed at fostering NPL secondary markets and easing collateral recovery from secured loans.

Enabling sovereign bond-backed securities

05-12-2018

This briefing analyses the IA accompanying the legislative proposal of the Commission to enable market-led sovereign bond-backed securities (SBBS). The problem definition and the objectives of the IA do not follow entirely the better regulation guidelines. Nevertheless, the policy options, including the baseline scenario, seem logical and pertinent, lacking, however, necessary specification and precision. The assessment focusses on direct effects on the euro-area sovereign bonds market, expecting ...

This briefing analyses the IA accompanying the legislative proposal of the Commission to enable market-led sovereign bond-backed securities (SBBS). The problem definition and the objectives of the IA do not follow entirely the better regulation guidelines. Nevertheless, the policy options, including the baseline scenario, seem logical and pertinent, lacking, however, necessary specification and precision. The assessment focusses on direct effects on the euro-area sovereign bonds market, expecting no direct social or environmental impacts. The IA does not include the mandatory 12-week public consultation nor a comprehensive cost and benefit assessment of the initiative. It also omits, without explanation, a number of relevant issues, so that it seems like a missed opportunity to provide comprehensive and transparent support to evidence-based policy making.

Financing bank resolution: An alternative solution for arranging the liquidity required

21-11-2018

Liquidity in resolution is one of the unresolved elements of the Single Resolution Mechanism. Currently, with the Single Resolution Fund (SRF) and the Eurosystem, there are two potential sources of liquidity in resolution, which both have clear limitations in use and amounts. Straightforward solutions to give the SRF and/or Eurosystem more firepower in resolution go against the main objectives of the resolution mechanism (i.e. breaking the sovereign-bank nexus and avoiding use of taxpayers’ money ...

Liquidity in resolution is one of the unresolved elements of the Single Resolution Mechanism. Currently, with the Single Resolution Fund (SRF) and the Eurosystem, there are two potential sources of liquidity in resolution, which both have clear limitations in use and amounts. Straightforward solutions to give the SRF and/or Eurosystem more firepower in resolution go against the main objectives of the resolution mechanism (i.e. breaking the sovereign-bank nexus and avoiding use of taxpayers’ money). This paper proposes an ECB liquidity facility with an SRF-guarantee as an alternative solution for banks in resolution. The funds available should be broadly sufficient to address potential liquidity needs for resolution tools. The proposed solution primarily requires agreement on the ESM-backstop for the SRF, a firmer commitment for (possible) future contributions for the SRF as well as a change to the current emergency liquidity assistance or introduction of a new dedicated Transitional Liquidity Assistance by the Eurosystem.

Autor externo

W.P. De Groen, CEPS

The financing of bank resolution - who should provide the required liquidity?

14-11-2018

This paper addresses two distinct yet interconnected problems. The first is whether the provision of Emergency Liquidity Assistance (ELA) on an individual bank basis should be centralised within the European Central Bank (ECB) and the second is whether existing liquidity financing arrangements are fit for the role. The paper argues that ELA centralisation would not require Treaty amendment and that a liquidity backstop is needed. However the latter cannot be provided by the ECB due to the prohibition ...

This paper addresses two distinct yet interconnected problems. The first is whether the provision of Emergency Liquidity Assistance (ELA) on an individual bank basis should be centralised within the European Central Bank (ECB) and the second is whether existing liquidity financing arrangements are fit for the role. The paper argues that ELA centralisation would not require Treaty amendment and that a liquidity backstop is needed. However the latter cannot be provided by the ECB due to the prohibition of monetary financing and other Treaty and EU law requirements. The choice of the EU entity which should be entrusted with the specific mandate will largely depend on the characteristics the facility would take. The paper considers such characteristics and analyses which authority may best fit that role. The paper also suggests that a well-structured facility could have a positive broader macroprudential impact, and that a fine balance needs to be struck between the risk of moral hazard and the beneficial effect this facility may have on market confidence.

Autor externo

Costanza A Russo Rosa M. Lastra, Queen Mary University of London

How to provide liquidity to banks after resolution in Europe’s banking union

14-11-2018

Banks deemed to be failing or likely to fail in the banking union are either put into insolvency/liquidation or enter a resolution scheme to protect the public interest. After resolution but before full market confidence is restored, the liquidity needs of resolved banks might exceed what can be met through regular monetary policy operations or emergency liquidity assistance. All liquidity needs that emerge must be met for resolution to be a success. In the euro area, this can only be done credibly ...

Banks deemed to be failing or likely to fail in the banking union are either put into insolvency/liquidation or enter a resolution scheme to protect the public interest. After resolution but before full market confidence is restored, the liquidity needs of resolved banks might exceed what can be met through regular monetary policy operations or emergency liquidity assistance. All liquidity needs that emerge must be met for resolution to be a success. In the euro area, this can only be done credibly for systemically important banks by the central bank. We discuss how to establish guarantees against possible losses in order to allow liquidity provisioning in times of resolution.

Autor externo

Maria Demertzis, Inês Gonçalves Raposo, Pia Hüttl, Guntram Wolff (Bruegel)

Abundant Liquidity and Bank Lending Activity: an Assessment of the Risks

14-09-2018

This paper assesses the risks facing the euro area banking system, as it returns to normal financial conditions without ECB support. In the first part we argue that risks to bank lending mainly stem from the transmission of external monetary policy effects that may not be aligned with ECB policies. The second part of the paper therefore offers some ideas on the need to moderate spillover effects from outside monetary policies or events. We also review how far new prudential policies, regulatory measures ...

This paper assesses the risks facing the euro area banking system, as it returns to normal financial conditions without ECB support. In the first part we argue that risks to bank lending mainly stem from the transmission of external monetary policy effects that may not be aligned with ECB policies. The second part of the paper therefore offers some ideas on the need to moderate spillover effects from outside monetary policies or events. We also review how far new prudential policies, regulatory measures and/or policies can be used to mitigate those unfavourable risks. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs.

Autor externo

Andrew HUGHES HALLETT

Excess Liquidity and Bank Lending Risks in the Euro Area

14-09-2018

Low interest rates and excess liquidity in the euro area, which exceeded €1,900 billion in September 2018, might create financial stability risks. We clarify the notion of excess liquidity and highlight that its current level is primarily the result of European Central Bank asset purchases. Overall, we conclude that financial stability risks in the euro area are low, but increased home bias and housing prices necessitate full attention from macroprudential authorities. Monetary policy tools are anyway ...

Low interest rates and excess liquidity in the euro area, which exceeded €1,900 billion in September 2018, might create financial stability risks. We clarify the notion of excess liquidity and highlight that its current level is primarily the result of European Central Bank asset purchases. Overall, we conclude that financial stability risks in the euro area are low, but increased home bias and housing prices necessitate full attention from macroprudential authorities. Monetary policy tools are anyway ill-suited to fostering financial stability objectives. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs Committee.

Autor externo

Zsolt DARVAS, David PICHLER

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Hearing on Rebuilding fish stocks in the Mediterranean: next steps
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27-10-2020
EPRS online Book Talk | Beyond Christendom - The politics of religion in Europe today
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27-10-2020
Study presentation for PECH committee
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