PUBLICATION
4 October 2024
ESRB interactive risk dashboard
Check the new interactive dashboard that complements the ESRB Risk Dashboard publication. The indicators are updated in real time.
ESRB interactive risk dashboard
SPEECH
26 September 2024
Technology as a new frontier
New technologies carry both benefits for the financial system and also potential risks, says ESRB Chair Christine Lagarde. As macroprudential policymakers, we must embrace and harness innovation to keep the financial system stable and resilient.
Read the speech
CONFERENCE
2 October 2024
Eighth ESRB Annual Conference
The ESRB Annual Conference took place on 26-27 September. This year’s theme was new frontiers in macroprudential policy. The conference featured discussions with policymakers, central bankers and academics, with opening remarks from ESRB Chair Christine Lagarde.
Check out the recordings- 4 October 2024
- PRESS RELEASE
- 27 September 2024
- SPEECHKeynote speech by Olli Rehn First Vice-Chair of the ESRB and Governor of the Suomen Pankki, at eight Annual Conference of the European Systemic Risk Board: New Frontiers in Macroprudential Policy
- 26 September 2024
- SPEECHKeynote speech by Claudia Buch, Chair of the Supervisory Board of the ECB, at the eighth European Systemic Risk Board (ESRB) annual conference on “New Frontiers in Macroprudential Policy”
- 26 September 2024
- SPEECHWelcome address by Christine Lagarde, President of the ECB and Chair of the European Systemic Risk Board, at the eighth annual conference of the ESRB
- 29 August 2024
- PRESS RELEASE
- 4 November 2024
- WORKING PAPER SERIES - No. 148Details
- Abstract
- Over the past decade, European investment funds have substantially increased their investment in dollar-denominated assets to more than 3.8 USD trillion, which should give raise to substantial currency hedging if US investor have reciprocal currency exposures in their international portfolios. Using comprehensive new contract level data (EMIR) for the period 2019-2023, we explore how the FX derivative trading by European funds compares to a feasible theoretical benchmark of optimal hedging. We find that hedging behaviour by all fund types is often partial, unitary (i.e., with a single currency focus), and sub-optimal. Overall, the observed FX derivative trading does not significantly reduce the return risk of the average European investment funds, even though optimal hedging strategies could without incurring substantial trading costs.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F31 : International Economics→International Finance→Foreign Exchange
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 4 October 2024
- RISK DASHBOARDAnnexes
- 4 October 2024
- RISK DASHBOARD
- 4 October 2024
- RISK DASHBOARD
- 29 August 2024
- ADVISORY SCIENTIFIC COMMITTEE REPORT - No. 15
- 1 August 2024
- OCCASIONAL PAPER SERIES - No. 26Details
- Abstract
- We present a methodology based on quarterly sectoral accounts to build a map of the euro area financial system. The map can be used to visualise existing cross-sectoral interconnections and exposures, to analyse how the main bilateral positions have evolved over time, and to understand how past episodes of financial stress affected balance sheet structures and inter-sectoral flows. We find that the euro area financial system was essentially bank-centric when it entered the global financial crisis, and only afterwards has the importance of investment funds, government debt and central banks increased substantially. In particular, investment funds are used by euro area economic agents to gain exposure to the rest of the world and vice versa. We also document weak dynamics since the global financial crisis in lending between euro area banks and non-financial corporations. Next, we look at the financial system during the global financial crisis and the outbreak of the COVID-19 pandemic, a further four episodes of financial stress (sovereign debt crisis, the US taper tantrum, the Brexit referendum, the start of Russia’s invasion of Ukraine) and the monetary policy tightening between 2005 and 2007. While there are differences across them, we unveil interesting common features. The map can be useful in determining which sectors are resilient enough to absorb losses and whether they can serve as transmitters of stress. Finally, turning to liquidity, bank deposits, money market fund shares and securities financing transactions are key to ensure a smooth supply of liquidity and should continuously be on the radar of policymakers.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G20 : Financial Economics→Financial Institutions and Services→General
G10 : Financial Economics→General Financial Markets→General
Annexes- 1 August 2024
- OCCASIONAL PAPER SERIES
- 1 August 2024
- OCCASIONAL PAPER SERIES
- 19 July 2024
- ANNUAL REPORTEnglishOTHER LANGUAGES (23) +
- 27 June 2024
- RISK DASHBOARDAnnexes
- 27 June 2024
- RISK DASHBOARD
- 27 June 2024
- RISK DASHBOARD
- 13 June 2024
- NBFI MONITOR REPORT
- 16 April 2024
- REPORTS
- 3 April 2024
- REPORTS
- 28 March 2024
- RISK DASHBOARDAnnexes
- 28 March 2024
- RISK DASHBOARD
- 28 March 2024
- RISK DASHBOARD
- 25 March 2024
- OCCASIONAL PAPER SERIES - No. 25Details
- Abstract
- We set out a stylised framework for the policies enacted to address the risks posed by systemically important institutions (SIIs) and to counter the too-big-to-fail (TBTF) problem, examining conceptually how far supervisory and resolution policies are complementary or substitutable. The Financial Stability Board (FSB) TBTF reforms comprise (i) a higher loss-absorbing capacity in the form of regulatory capital buffers for SIIs, (ii) more intensive and effective supervision and (iii) a recovery and resolution regime, including sufficient loss-absorbing and recapitalisation capacity in the form of capital and eligible liabilities, to deal with distressed or failing institutions. These reform strands are part of a fundamentally integrated concept, but were largely developed and implemented independently of each other. Therefore, they may fall short of fully taking interdependencies into account, rendering policies less effective and consistent than an integrated approach, which we outline as an alternative. The analysis discusses the regulatory interplay, its implications for policymaking based on the FSB TBTF reforms for banks and its operationalisation in the Basel framework at the global level and in the European Union.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
- 1 March 2024
- WORKING PAPER SERIES - No. 147Details
- Abstract
- This paper studies market liquidity in interest rate swaps (IRS) before and during the global tightening of monetary policy. IRS constitute the single largest derivatives segment globally. Banks and Pension Funds extensively rely on IRS to hedge interest rate risk. Hence, providing an understanding of this market and the drivers of market liquidity is a key research question in the current market context. We use price and volume data from around 338.000 trades in the most active long-horizon swap contract denominated in EUR to construct seven liquidity measures. Taking a comprehensive approach, we ap-ply linear regressions to determine the drivers of variation in liquidity. Our liquidity measures are significantly related to monetary policy, market-wide fixed income liquidity, EURIBOR rate volatility and Dealer behaviour. Indicators for generic market stress such as VIX which are often documented in the literature are not strongly connected to IRS trading conditions.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 15 February 2024
- WORKING PAPER SERIES - No. 146Details
- Abstract
- The bulk of cash is held for store of value purposes, with such holdings sharply increasing in times of high economic uncertainty and only a fraction of the population choosing to hoard cash. We develop a Diamond and Dybvig model with public money as a store of value and heterogeneous beliefs about bank stability that accounts for this evidence. Only consumers who are sufficiently pessimistic about bank stability hold cash. The introduction of a central bank digital currency (CBDC) as a store of value lowers the storage cost of public money and induces partial bank disintermediation, which is nevertheless mitigated by an increase in relative maturity transformation. This has heterogeneous welfare consequences across the population. While cash holders always benefit by switching to CBDC, each of all other consumers may be better off or not depending on the probability of a bank run, her (and all others’) belief about such probability and the degree of technological superiority of CBDC.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 1 February 2024
- REPORTS
- 15 January 2024
- REPORTS
- 31 December 2023
- FINANCIAL CRISES DATABASERelated
- 31 July 2017
- OCCASIONAL PAPER SERIES
- 18 December 2023
- REPORTS
- 7 December 2023
- RISK DASHBOARDAnnexes
- 7 December 2023
- RISK DASHBOARD
- 7 December 2023
- RISK DASHBOARD
- 15 November 2023
- OCCASIONAL PAPER SERIES - No. 24Details
- Abstract
- The trading of bonds and swaps largely relies on bank dealers as core market-makers. Dealers provide liquidity and trade the instruments with smaller or less active firms, in part by using their own balance sheets for inventory holding or hedging purposes. The reforms carried out in the aftermath of the global financial crisis (GFC) and the low interest rate environment have extensively changed the mechanisms and costs of trading fixed income instruments. This paper sets out to analyse the structure of trading in key over-the-counter (OTC) fixed income markets. We focus on three questions: (1) how are bonds and swaps currently traded and how liquid are these markets?, (2) how do the structural changes affect the dealer business model and market functioning?, and (3) how did the coronavirus (COVID-19) shock in March 2020 affect the OTC bond and swap market in its new post-reform set-up? To answer these questions, we combine an institutional and research perspective with a focus on key EU markets. We use public data and findings from the rich body of academic literature to describe the dealer business model and its post-GFC evolution. Overall, we argue that OTC fixed income trading is becoming “faster” due to the progress of electronic trading and the rise of non-bank traders, which has led bank dealers to make some adjustments to their market-making activities. The ongoing challenges faced in ensuring resilient provision of liquidity were also highlighted by the US bond market dislocation in March 2020.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 15 November 2023
- WORKING PAPER SERIES - No. 145Details
- Abstract
- We estimate the causal effects of macroprudential policies on the entire distribution of GDP growth for advanced European economies using a narrative-identification strategy in a quantile-regression framework. While macroprudential policy has near-zero effects on the centre of the GDP-growth distribution, tighter policy brings benefits by reducing the variance of future growth, significantly boosting the left tail while simultaneously reducing the right. Assessing a range of channels through which these effects materialise, we find that macroprudential policy particularly operates through ‘credit-at-risk’: it reduces the right tail of future credit growth, dampening booms, in turn reducing the likelihood of extreme GDP-growth outturns.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 5 October 2023
- RISK DASHBOARDAnnexes
- 5 October 2023
- RISK DASHBOARD
- 5 October 2023
- RISK DASHBOARD
- 2 October 2023
- OCCASIONAL PAPER SERIES - No. 23Details
- Abstract
- The European significant risk transfer (SRT) securitisation market is increasingly being used by major EU banks to manage risk and capital, but is not well known. SRT can provide an extra source of capital, flexibly and at a reasonable cost. Despite the bespoke nature of transactions, the SRT market has expanded significantly in the recent past to the point where it has now become a dependable way for banks to release capital, manage their balance sheets and improve their capital ratios. Banking supervisors assess SRT transactions to evaluate the degree of risk transfer from banks to investors, allowing institutions to achieve capital relief when this is considered sufficient. The market has become a permanent feature in European banks’ capital management toolkit, alongside other standard but better-known instruments. Drawing on the ECB’s unique and comprehensive database of SRT securitisations issued by large European banks supervised by the Single Supervisory Mechanism (SSM), we provide an overview of the main features of the European SRT market, a typology of the structures currently in use and an account of the market’s evolution over the past five years. In so doing, we attempt to shed light on the main conceptual features of SRT securitisations in relation to non-SRT securitisation structures, as well as the regulatory processes behind capital relief that have been instrumental in supporting their increased use by European banks.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G29 : Financial Economics→Financial Institutions and Services→Other
- 15 September 2023
- OCCASIONAL PAPER SERIES - No. 22Details
- Abstract
- This research explores two aspects of European insurers’ investment behaviour related to crises. While they are often considered as financial market stabilisers and long-term investors, there is currently a lack of knowledge about insurers’ investment behaviour in crises under the regulatory Solvency II regime implemented in 2016. With assets of nearly €9 trillion and bond holdings of more than €3 trillion in Q2 2022, European insurers are important financial intermediaries and finance European economies. With an empirical study, we investigate their reaction to the asset price shock at the onset of the coronavirus (COVID-19) pandemic in the first quarter of 2020 and explore cyclical investment behaviour by replicating Timmer’s (2018) study with fixed effects panel regressions. We use a large cross-country dataset, with the novelty of exploiting cross-country heterogeneity for European countries with 458,758 security-level observations from 2017 to 2022. Overall, our findings are very relevant from a policy perspective as they suggest active and heterogeneous cyclical investment behaviour in the European insurance market with differences across issuer and holder countries of domicile.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 4 September 2023
- REPORTSRelated
- 4 September 2023
- PRESS RELEASE
- 1 August 2023
- WORKING PAPER SERIES - No. 144Details
- Abstract
- We study whether regulation that relies on historical cost accounting (HCA) rather than mark-to-market accounting (MMA) to insulate banks’ net worth from financial market volatility affects the transmission of quantitative easing (QE) through the bank lending channel. Using detailed supervisory data from Italian banks and taking advantage of a change in accounting rules, we find that HCA makes banks significantly less responsive to QE than MMA. Hence, while HCA can insulate banks’ balance sheets during periods of distress, it also weakens the effectiveness of unconventional monetary policy in reducing firms’ credit constraints through the bank lending channel.
- JEL Code
- G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
M48 : Business Administration and Business Economics, Marketing, Accounting→Accounting and Auditing→Government Policy and Regulation
- 19 November 2024
- STRESS TESTING
- 28 October 2024
- OPINIONSAnnexes
- 28 October 2024
- OPINIONS
- 2 September 2024
- RESPONSES AND LETTERS
- 19 August 2024
- RESPONSES AND LETTERS
- 19 August 2024
- RESPONSES AND LETTERS
- 19 August 2024
- RESPONSES AND LETTERS
- 1 July 2024
- OPINIONS
- 30 April 2024
- OPINIONS
- 23 April 2024
- RESPONSES AND LETTERS
- 17 April 2024
- RESPONSES AND LETTERS
- 4 April 2024
- STRESS TESTINGAnnexes
- 4 April 2024
- STRESS TESTING
- 4 April 2024
- STRESS TESTING
- 6 March 2024
- RESPONSES AND LETTERSRelated
- 30 November 2020
- RECOMMENDATIONSEnglishOTHER LANGUAGES (22) +
- 17 January 2024
- OPINIONSAnnexes
- 17 January 2024
- OPINIONS
- 16 January 2024
- OPINIONSAnnexes
- 16 January 2024
- OPINIONS
- 19 December 2023
- OPINIONS
- 19 December 2023
- STRESS TESTINGAnnexes
- 5 December 2023
- STRESS TESTING
- 19 December 2023
- STRESS TESTING
- 19 December 2023
- RECOMMENDATIONSAnnexes
- 19 December 2023
- RECOMMENDATIONS
- 5 October 2023
- RESPONSES AND LETTERS
- 5 October 2023
- RESPONSES AND LETTERS
- 5 October 2023
- RESPONSES AND LETTERS
- 1 August 2024
- 6 July 2024
- 1 July 2024
- 30 June 2024
- 30 June 2024
- 27 June 2024
- 26 June 2024
- 24 June 2024
- 13 June 2024
- 4 April 2024
- 15 March 2024
- 26 January 2024
- 11 January 2024
- 1 January 2024
- 29 December 2023
- 28 December 2023
- 27 December 2023
- 22 December 2023
- 20 December 2023
- 19 December 2023
- 19 December 2023
- 18 December 2023
- 15 December 2023
- 15 December 2023
- 15 December 2023
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