The General Board of the European Systemic Risk Board (ESRB) held its 28th regular meeting on 7 December 2017

The General Board continues to highlight the repricing of risk premia in global financial markets as the main risk to financial stability in the European Union (EU). Despite solid prospects of recovery in the real economy, tail risks remain elevated amid high geopolitical and policy uncertainties, both in Europe and in the global economy as a whole. These uncertainties are among the potential triggers for a repricing of risk premia in the global financial markets. The General Board also discussed the vulnerabilities in the EU commercial real estate sector and the adverse scenario for the 2018 EBA EU-wide stress test.

The investment fund sector has grown strongly over the past decade, both in the EU and globally, and its role in financial intermediation is expected to increase further within the Capital Markets Union. While the diversification of financing sources should help to enhance both the efficiency and the resilience of the financial system as a whole, there are concerns that the greater role of investment funds in financial intermediation may result in them amplifying any future financial crisis. Therefore, the General Board adopted a Recommendation which addresses systemic risks related to liquidity mismatches and the use of leverage in investment funds. This Recommendation implements some of the tasks set out in the ESRB’s macroprudential policy strategy beyond banking and enhances the macroprudential framework in the EU as it applies to the investment fund sector. The Recommendation will be published in early 2018.

The General Board took note of a report of the ESRB High-Level Task Force on Safe Assets. The technical report concerns a feasibility study on sovereign bond-backed securities (SBBS), which would comprise senior and subordinated claims on a diversified portfolio of sovereign bonds. The Task Force will publish this report in due course with the aim of informing wider policy discussions.

The General Board also exchanged views on the macroprudential structural buffers framework. The ESRB will publish a report on the macroprudential use of structural buffers, a revised chapter of the ESRB handbook on operationalizing macroprudential policy in the banking sector and its views on how this framework could be enhanced.

Finally, the General Board reappointed Professor Richard Portes as a member and Vice-Chair of the Advisory Scientific Committee.

The ESRB will release the 22nd issue of its risk dashboard today. The risk dashboard is a set of quantitative and qualitative indicators of systemic risk in the EU financial system.

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