The General Board of the European Systemic Risk Board held its 34th regular meeting on 27 June 2019

4 July 2019

The General Board of the European Systemic Risk Board (ESRB) continues to highlight financial market repricing, as well as balance sheet vulnerabilities of EU financial institutions and indebtedness, as the main risks to financial stability in the European Union in the context of a weaker economic growth outlook. The presence of uncertainties related to geopolitical factors and the rising threat of protectionism and vulnerabilities in emerging markets have led to deterioration in the growth outlook with downside risks looking ahead. This could further heighten vulnerabilities of EU financial institutions and challenge debt sustainability in the public and private sectors.

The General Board also considered the medium-term risks related to vulnerabilities in the EEA residential real estate sector. The ESRB risk and policy assessment aimed to identify the main trends in various risk indicators across the EEA countries’ residential real estate sector, and the respective macroprudential policy action that these countries have taken or may still need to take in order to mitigate the financial stability risks identified.

Non-bank financial institutions have become an increasingly important source of funding for the real economy over the past decade. Although the diversification of funding sources for the real economy is a welcome development, it could also lead to existing risks migrating outside the banking sector or new risks emerging. The General Board exchanged views on a range of systemic risks and vulnerabilities related to non-bank financial intermediation, including those related to interconnectedness, liquidity and leverage. An annual overview of developments as regards investment funds and other financial institutions is summarised in the EU Non-Bank Financial Intermediation Risk Monitor (previously Shadow Banking Monitor^[1]), which the ESRB will publish in the coming months.

Furthermore, the General Board discussed the key results from the ESRB workshop on the second-round effects from the banking sector stress test. The manner in which banks respond to shocks can greatly amplify the initial shock, prompting a vicious macro-financial feedback loop. For a better understanding of such second-round effects, the General Board decided to supplement the 2018 EBA EU-wide banking sector stress test with a questionnaire. The questionnaire was sent to the 30 largest banking groups in Europe and aggregate results were discussed with representatives from participating banks.

The General Board made four appointments, in line with ESRB Regulation (EU) No 1092/2010, as follows.

• Pablo Hernández de Cos, as Chair of the Advisory Technical Committee (ATC), for a three-year renewable term. Pablo Hernández de Cos has been Governor of Banco de España since 2018 and Chair of the Basel Committee on Banking Supervision since 2019. He replaces Philip R. Lane.
• Professor Richard Portes, as Chair of the Advisory Scientific Committee (ASC). Richard Portes is Professor at London Business School and brings experience as previous Chair and Vice-Chair of the ASC and as co-Chair of the ATC-ASC Joint Expert Group on non-bank financial intermediation. Professor Portes has been a member of the ASC since 2014.
• Professor Javier Suárez, as Vice-Chair of the ASC. Javier Suárez is Professor at the Centro de Estudios Monetarios y Financieros (CEMFI) and brings experience as previous Chair and Vice-Chair of the ASC and as Chair of the ESRB Task Force on the financial stability implications of IFRS 9. He has been a member of the ASC since 2015.
• Professor Isabel Schnabel, as Vice-Chair of the ASC. Isabel Schnabel is Professor at the University of Bonn. She is a member of the German Council of Economic Experts and has been a member of the ASC since 2015.

In line with the ESRB Regulation (EU) No 1092/2010, the chairmanship of the Advisory Scientific Committee rotates between the three professors during the four years of their appointment. Furthermore, the Chair of the Advisory Technical Committee as well as the Chair and Vice-Chairs of the Advisory Scientific Committee have a voting right on the General Board.

It is with great sadness that the General Board learnt about the passing away of Professor Alberto Giovannini. Professor Giovannini served on the Advisory Scientific Committee, co-chaired the ESRB expert group on interconnectedness and had great enthusiasm for the mission of the ESRB. The General Board decided to commemorate Professor Giovannini by giving his name to the EMIR Bridge Programme for Data Science^[2] and by organising a dedicated ESRB conference which will take place in the first half of 2020.

Finally, the ESRB will release the 28th 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, tel.: +49 69 1344 7316.