21 June 2012 - ESRB General Board meeting in Frankfurt
The General Board of the European Systemic Risk Board (ESRB) held its sixth regular meeting today.
The current situation
Since the previous General Board meeting on 22 March 2012, markets have experienced new bouts of volatility and uncertainty. Notwithstanding mitigating factors, such as the provision of central bank liquidity and recapitalisation initiatives, systemic risk remains high.
Since April 2012 the borrowing costs of most national governments have risen again, reflecting political uncertainties in a number of EU countries, as well as market fears of a further aggravation of the sovereign crisis. Furthermore, growth projections have worsened significantly since the beginning of the year, with foreseeable negative repercussions for the loan portfolios and profits of banks adding to the pressures on banks stemming from heightened uncertainty.
Moreover, many EU banks still face a need to reduce their leverage ratios and reliance on wholesale funding to more sustainable levels.
The macro-prudential perspective
A further economic slowdown and an aggravation of the sovereign debt crisis could endanger the resilience of an already stressed banking sector, disrupt the provision of credit to the real economy and exacerbate an already high systemic risk.
The fundamental challenges remain: limiting contagion between Member States across the EU; and promoting a macroeconomic strategy that supports growth and fiscal consolidation.
Addressing these challenges requires measures to tackle vulnerabilities at their source that lie beyond the remit of the ESRB and European System of Financial Supervision. Within this broader context, and from a macro-prudential point of view, the ESRB encourages authorities to:
Support credible mechanisms for the recapitalisation and restructuring of the banking sector based on:
- increased consistent valuation and transparency about banks’ asset quality;
- the imposition of strong conditionality on the relevant banks with regard to the use of any publicly funded recapitalisation;
- the resolution of non-viable institutions.
Continue with measures to build resilience among banks generally by:
- requiring capital levels accumulated so far to be maintained and encouraging banks to assume their responsibilities in financing the real economy;
- ensuring a focus on banks’ leverage as well as risk-sensitive capital adequacy measures for improving resilience.
Exchange information and, when necessary, coordinate actions at the ESRB so as to ensure the efficiency of macro-prudential measures, including those mentioned above.
While acknowledging the efforts made so far, the ESRB reiterates its call for all national and European authorities to act to safeguard financial stability, and to do so in unison, with speed and ambition. The ESRB stands ready to work together with the relevant institutions to this end and, within its remit, to take all necessary steps to contribute to safeguarding financial stability in the EU.
The General Board elected Mr Ewald Nowotny, Governor of the Oesterreichische Nationalbank, as member of the Steering Committee to replace Mr Athanasios Orphanides.