ACCOUNTABILITY
4 December 2024
Hearing at the European Parliament
ESRB Chair Christine Lagarde spoke before the Committee on Economic and Monetary Affairs and answered questions from its members.
Read the introductory statement
SPEECH
18 December 2024
Systemic risks to financial stability
ESRB First Vice-Chair Olli Rehn gave a speech to the CFA Institute Systemic Risk Council on addressing systemic risks in the European Union economy.
Read the speech
RESEARCH
16 December 2024
Call for papers: Ieke van den Burg prize
Call for papers: the ESRB is seeking academic papers related to its mission of preventing and mitigating systemic risks to financial stability. Interested? Submit your paper by 31 March 2025.
Read more- 18 December 2024
- SPEECHKeynote speech by Olli Rehn First Vice-Chair of the ESRB and Governor of the Suomen Pankki, at CFA Institute Systemic Risk Council
- 18 December 2024
- PRESS RELEASE
- 5 December 2024
- PRESS RELEASE
- 4 December 2024
- PRESS RELEASE
- 4 December 2024
- SPEECHSpeech by Christine Lagarde, Chair of the European Systemic Risk Board, at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament
- 2 January 2025
- WORKING PAPER SERIES - No. 150Details
- Abstract
- Using supervisory data of alternative investment funds investing in bonds, I exploit the COVID-19 crisis to examine the effectiveness of redemption restrictions. First, I find that redemption restrictions reduced outflows during the March 2020 market turmoil, but did not result in higher outflows in the periods following the crisis episode. Second, I find that funds with higher redemption restrictions engaged less in procyclical cash hoarding during the COVID-19 crisis period, even after controlling for the size of their outflows. Third, I find that redemption restrictions do not have a significant impact on the sensitivity of investor inflows to good performance, but they significantly reduce the sensitivity of outflows to bad performance. These findings suggest that redemption restrictions can mitigate fragility in open-ended investment funds.
- JEL Code
- 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
- 2 January 2025
- WORKING PAPER SERIES - No. 149Details
- Abstract
- Exchange-traded funds (ETFs) are typically considered to be passive investment vehicles designed to track a benchmark index. However, with the promulgation of the Securities and Exchange Commission’s 2019 ETF Rule, funds are permitted the use of custom creation/redemption baskets. This change effectively enables a form of active basket management during the ETF’s arbitrage process. In this paper, I show that the uptake of custom baskets has heterogeneous effects on the microstructure of corporate bond ETFs. While custom baskets enhance the liquidity transformation of bond ETFs, this comes at a cost, as they concurrently produce larger index tracking errors. To isolate these effects empirically, I exploit the 2019 ETF Rule as a quasi-natural experiment. My findings substantiate the presence of a trade-off between liquidity enhancement and tracking error minimization, and underscore the role of custom baskets as contributors to this trade-off.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
D47 : Microeconomics→Market Structure and Pricing→Market Design
- 18 December 2024
- REPORTS
- 5 December 2024
- RISK DASHBOARDAnnexes
- 5 December 2024
- RISK DASHBOARD
- 5 December 2024
- RISK DASHBOARD
- 4 December 2024
- REPORTS
- 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
- 7 January 2025
- STRESS TESTINGAnnexes
- 7 January 2025
- STRESS TESTING
- 7 January 2025
- STRESS TESTING
- 20 December 2024
- RESPONSES AND LETTERS
- 4 December 2024
- OPINIONS
- 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
- 1 August 2024
- 6 July 2024
- 1 July 2024
- 30 June 2024
- 30 June 2024
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- 1 January 2024
- 29 December 2023
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- 19 December 2023
- 18 December 2023
- 15 December 2023
- 15 December 2023
- 15 December 2023
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