ESRB General Board meeting in Frankfurt

The General Board of the European Systemic Risk Board (ESRB) held its 22nd regular meeting on 23 June 2016.

The risk of repricing in financial markets and the further weakening of financial institutions’ balance sheets were highlighted by the General Board as the main risk to financial stability in the EU. As part of this discussion, the Bank of England updated the General Board on its contingency planning for the UK’s EU referendum. The General Board also discussed key conditions that contribute to increasing vulnerability in the EU banking sector. These are: low profitability in an environment of low interest rates; the burden of non-performing legacy assets, which is particularly high in some EU countries; and the excess supply of services provided by banks. The General Board emphasised that addressing these challenges should remain a top priority for EU policymakers. The General Board continues to discuss macroprudential issues and structural changes related to the low interest rate environment, with a view to identifying areas in which macroprudential policies may be needed.

The financial stability implications of the possible imbalances between the demand for and supply of market liquidity are an important macroprudential issue, as these imbalances could amplify and/or transmit shocks through the financial system. Against this background, the ESRB has assessed risks for investment funds and market-makers in Europe. This work benefited from the ESRB’s ability to gather data and conduct analyses across all EU Member States. The General Board endorsed the publication of the ESRB report, which discusses the results of the ESRB’s assessment as regards the market-making sector. The document will be published this summer.

Moreover, the General Board endorsed the publication of the ESRB’s strategy paper on macroprudential policy beyond banking. While macroprudential policy for the banking sector is already operational, the policy strategy, regulatory data and instruments required to address risks beyond the banking sector need further enhancement. The ESRB paper therefore analyses the current legal and institutional framework governing macroprudential policies beyond banking and proposes a holistic policy strategy to address financial stability risks. The ESRB will publish the paper in July.

Finally, the General Board appointed Daniel Gros as a member of the Advisory Scientific Committee (ASC) for a second four-year term. Daniel Gros has been a member of the ASC since December 2011. He is a Director of the Centre for European Policy Studies (CEPS) in Brussels.

The ESRB has today released Issue 16 of its risk dashboard. The risk dashboard is a set of quantitative and qualitative indicators of systemic risk in the EU financial system.

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