ESRB General Board meeting in Frankfurt

The General Board of the European Systemic Risk Board (ESRB) held its 25th regular meeting on 23 March 2017.

The General Board highlighted the repricing of risk premia in global financial markets as the main risk to financial stability in the EU. While the ongoing economic recovery in Europe is expected to continue to firm and broaden, the General Board also noted that, amid heightened policy and political risks, an episode of repricing of risk premia could lead to a re-emergence of market concerns about public and private sector debt sustainability in some EU countries. Furthermore, banks in several European economies continue to be overshadowed – to different degrees – by cyclical and structural vulnerabilities, which relate to low profitability, overcapacity and poor asset quality. Moreover, the low interest rate environment and longevity risk, together with other factors, add to difficulties faced by the EU insurance and pension fund sectors. The General Board emphasised that addressing these challenges in the EU financial system should remain a top priority for EU policymakers.

Moreover, the General Board endorsed the publication of the second EU Shadow Banking Monitor, a report prepared jointly by the Advisory Technical Committee and Advisory Scientific Committee of the ESRB. The Monitor provides an assessment of structural changes and an overview of the key risks associated with the shadow banking sector’s activities. The report will be published in the coming months.

The General Board exchanged views on the macroprudential measures taken in the EU in 2016. Most macroprudential measures were of a tightening nature and related to the residential real estate sector and systemically important institutions. These developments are covered in the third ESRB annual review of macroprudential policy in the EU, which will be published in the second quarter of this year.

The General Board appointed Philip R. Lane, Governor of the Central Bank of Ireland, as Chair of the Advisory Technical Committee (ATC) for a three-year term. Governor Lane replaces Stefan Ingves, Governor of Sveriges Riksbank, who has chaired the ATC for the last six years. The General Board expressed its sincere gratitude towards Governor Ingves for driving critical reforms of the way the ESRB conducts macroprudential policy and for leading the ATC with great strength and distinction, leaving a secure legacy.

The General Board received an update on ongoing work by the ESRB High-Level Task Force on Safe Assets. The mandate of the task force is to conduct a feasibility study of sovereign bond‑backed securities, which could comprise senior, mezzanine and junior claims on a diversified portfolio of central government debt securities, with no mutualisation of sovereign risk. Looking ahead, the work of the task force on this feasibility study will continue, based on input from members and other stakeholders.

Finally, the General Board approved the adverse scenario prepared jointly by ECB staff and the ESRB Task Force on Stress Testing for the 2017 EU-wide stress test of Institutions for Occupational Retirement Provision (IORPs) by the European Insurance and Occupational Pensions Authority (EIOPA).

The ESRB will release the 19th 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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