The General Board of the European Systemic Risk Board (ESRB) held its 29th regular meeting on 22 March 2018

29 March 2018

The General Board noted that stronger and more broad-based economic growth has improved the risk outlook for the stability of the EU financial system. However, tail risks remain elevated amid significant political, geopolitical and policy uncertainties. Those uncertainties could act as triggers for the underlying vulnerabilities, in particular as regards the risk of a re-pricing of risk premia in global markets leading to a rise in yields, which could potentially have a negative impact on debt sustainability in the public and private sectors. Increased regulatory capital ratios and improved asset quality, together with strengthening economic growth, have contributed to improving risk outlook for the EU banking system. Nonetheless, vulnerabilities persist in some Member States’ banking systems in the form of high – albeit decreasing – NPLs, low profitability and overcapacity that continue to require attention.

The General Board exchanged views on the major trends in macroprudential policy in the EU in 2017. Most Member States had taken some macroprudential policy measures[1] and most of these measures were of a tightening nature and aimed at addressing cyclical risks. The most frequently used instruments over the past year were the systemic risk buffer, the cap on the loan-to-value ratio and the countercyclical capital buffer. The ESRB will publish its “Review of Macroprudential Policy in the EU in 2017” in the second quarter of 2018.

A healthy (re)insurance sector is essential for the functioning of a modern market economy and contributes to economic growth and financial stability. The new EU-wide microprudential framework for (re)insurance, set out in the Solvency II Directive, has been a big step forward and makes the EU (re)insurance sector more resilient. Nonetheless, macroprudential policy that looks beyond individual (re)insurers and deploys measures and instruments to target systemic risks might need to be further developed. To this end the General Board discussed a conceptual framework for analysing, identifying, mitigating and preventing the main systemic risks stemming from the insurance sector. This work will be continued by looking into how current insurance regulation already helps to address the main systemic risks in insurance and by considering possible additional measures/instruments to be included in the upcoming Solvency II review.

Finally, the General Board discussed the adverse scenario prepared jointly by ECB staff and the ESRB Task Force on Stress Testing for the 2018 EU-wide insurance stress test by the European Insurance and Occupational Pensions Authority (EIOPA).

The ESRB will release the 23rd 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.

For media queries, please contact William Lelieveldt: William.Lelieveldt@ecb.int, tel.: +49 69 1344 7316.

[1] An overview of measures is published on the ESRB website and updated on a monthly basis.