ESRB General Board meeting in Frankfurt

The General Board of the European Systemic Risk Board (ESRB) held its 24th regular meeting on 15 December 2016.

The General Board highlighted the repricing of risk premia in global financial markets and the weaknesses in financial institutions’ balance sheets as the main risks to financial stability in the EU. The risk of an abrupt reversal of global risk premia mostly reflects uncertainty about a recovery in the global economy amidst geopolitical and policy uncertainties as well as vulnerabilities in key emerging market economies. The repricing of risk premia in global markets could have an adverse impact on EU banks and other financial institutions if market, liquidity and interest rate risks were to materialise. In addition, the General Board members exchanged views on macroprudential aspects related to the calibration of the ultimate forward rate, which will be communicated to the European Insurance and Occupational Pensions Authority, which will be discussing this issue at the beginning of 2017.

Moreover, the General Board endorsed the publication of the ESRB report “The macroprudential use of margins and haircuts”, which explains the rationale for macroprudential policies to mitigate systemic risk that arises from excessive leverage and procyclicality in collateral requirements. This report also discusses how margins and haircuts could be used as macroprudential tools and highlights practical challenges in the use of such tools. The report aims to contribute to the understanding of the macroprudential use of margin and haircuts and to inform ongoing international discussions.

The General Board was updated on the recent consultation with the private sector stakeholders conducted by the ESRB High-Level Task Force on Safe Assets. The High-Level Task Force, which is chaired by Philip Lane, Governor of the Central Bank of Ireland, investigates the potential creation of sovereign bond-backed securities (SBSs) consisting of senior and junior claims on a diversified portfolio of sovereign bonds. The Task Force will continue its feasibility study of SBS via analyses, an ongoing dialogue with industry and discussions by its workstreams. Before the end of 2016, the ESRB will announce on its website a survey on SBSs, inviting market participants to respond by 27 January 2017.

Finally, the General Board approved adverse scenarios prepared jointly by ECB staff and the ESRB Task Force on Stress Testing for the 2017 EU-wide stress test of central counterparties by the European Securities and Markets Authority.

The ESRB will release the 18th 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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