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Later today, President Macron’s brainchild – the European Political Community – has its first meeting and the think tanks analyse the possibilities. Nearer at hand, the ESRB has issued its first general warning of severe risks to financial stability as the IMF commented on the obvious risks of open-ended mutual funds offering daily liquidity to investors while investing in illiquid assets. The global `committees’ (BCBS/IOSCO/CPMI) published their sobering findings on the margining practices during the early 2020 crisis – with the UK’s gilt market crisis last week neatly illustrating these apparently-remote but dramatic risks. On the brighter side, BCBS published its report on the implementation of Basel III and showed that, globally, bank capital ratios hit decade-high levels. EURACTIV reported that EU banks are exposed to €239 billion in fossil fuel assets. ESMA reported on the risks of cryptoassets to financial stability while Finextra published SWIFT’s successful trial of its ability to link such assets (and CBDC) `smoothly’ via DLT into the traditional payments system….
Graham Bishop
(This e-mail provides the headers of a selection of the articles published this week. If you would like to upgrade to our Gold service and access all articles - with live links to the underlying news - please click on the button)
Articles from 30 September - 6 October
Policy impacting Finance
CER podcast: What might Macron's European Political Community look like? : Emmanuel Macron set out his vision for a 'European Political Community' in a speech to the European Parliament in Strasbourg on May 9th. Podcast by Charles Grant, Camino Mortera-Martinez
EPC' Mucznik: The European Political Community: Time to invest in the power of democracies : A values-based European Political Community (EPoC) should clearly and unambiguously state that it expects its members to share a democratic and like-minded character. Rules, principles, and red lines should be established at the beginning and not halfway through the process.
Bruegel podcast: What should the European Political Community look like? : Discussion of a European Political Community ahead of the summit in Prague on 6 October.
CEPS' Emerson: Will the European Political Community actually be useful? : On 6 October 2022 there will be an inaugural EU meeting at summit level, with the EU’s close neighbours also invited, to debate security and stability as part of a budding European Political Community (EPC), as proposed by President Macron with support from President Michel.
FT: Europe faces ‘severe risks’ to financial system, regulators warn : Ukraine war could create combination of slow growth, falling prices and market stress, according to ESRB
Remarks by Paschal Donohoe following the Eurogroup meeting of 3 October 2022 : We also reiterated the need to speed up our reduction of energy consumption, which is critical to stabilising energy prices and reducing our reliance on Russian fossil fuels.
CEPR/Vox's Buti/Messorri: A central fiscal capacity to tackle stagflation : In the past year, there have been many calls for a permanent central fiscal capacity at the EU or euro area level. This column argues that a European central fiscal capacity would improve policy efficiency by focusing on stabilisation in the event of demand shocks and on boosting potential output in the event of supply shocks.
IMF blog: How Illiquid Open-End Funds Can Amplify Shocks and Destabilize Asset Prices : Mutual fOpen-end investment funds, as they are known, have grown significantly in the past two decades, with $41 trillion in assets globally this year. That represents about one-fifth of the nonbank financial sector’s holdings. unds holding hard-to-sell assets but offering daily redemptions can spark volatility and magnify the impact of shocks, especially in periods of market stress
Banking Union
SSM's Enria: Better safe than sorry: banking supervision in the wake of exogenous shocks : Today I will focus on the risk outlook for the euro area banking sector at this delicate juncture and on the approach taken by the ECB to ensure banks remain focused on risk management and on prudently monitoring the multi-faceted downside risks emanating from a fast-changing economic environment.
Daisy chains: Council adopted a revised bank resolution framework : The ‘Daisy Chain’ regulation introduces targeted adjustments that improve the resolvability of banks. It helps to ensure that banks remain resilient and capable of withstanding shocks.
Basel Committee publishes evaluation of buffer usability and cyclicality in its regulatory framework; issues newsletter on positive cycle-ne : New evaluation report finds some indications of a positive relationship between banks' capital headroom and lending and further evidence that temporary reductions in capital requirements supported lending during the Covid-19 pandemic.
Basel Committee reports on Basel III implementation progress : Update shows further progress since previous report in October 2021 in implementing both standards with past due dates and outstanding standards with 1 January 2023 due date.
Basel III capital ratios for largest global banks rose last year to the highest level since 2012, latest Basel III monitoring exercise shows : Initial Basel III capital ratios increased to the highest level since the beginning of the exercise in 2012, and banks' profits remained at or near record high levels across all regions in H2 2021.
Capital Markets Union
BCBS-CPMI-IOSCO finalise analysis of margining practices during the March 2020 market turmoil : The report presents a data-driven analysis examining margin calls in March and April 2020 and the extent to which market participants were prepared to meet them.
Environmental, Social, Governance (ESG)
ESAs propose disclosures for fossil gas and nuclear energy investments : In the amending final draft RTS, the ESAs propose to add specific disclosures to provide transparency about investments in taxonomy-aligned gas and nuclear economic activities.
EBF president says that governments, regulators and banks in Europe should work together to accelerate the green transition : Ana Botín, European Banking Federation (EBF) President and Executive Chair of Banco Santander, has today urged European leaders to work together with banks to accelerate the transition to net zero in response to the energy and climate crisis.
EURACTIV: Top EU banks exposed to $239bn in fossil fuel assets : A new report published by Finance Watch unveiled the exposure of EU banks to fossil fuel assets and called for higher capital requirements to ward off the financial stability risk of stranded fossil fuel assets.
Bruegel's Grzegorczyk/Wolff: Greeniums in sovereign bond markets : In this paper, we analyse whether green sovereign bonds are systematically priced differently to conventional sovereign bonds in the secondary markets
Delors Centre's Mack: Give us the tools and we‘ll finish the job: How Europe can fix the broken audit market : The European audit market has been broken for far too long. After glaring audit failures in the recent past, the legislation is once more under review.
Protecting Customers
EIOPA calls for better value for money in bancassurance in warning to banks and insurers : In its warning, EIOPA calls on insurers and banks to take action or risk facing supervisory measures. It follows a thematic review - also published today - on the functioning of the EU market for CPI products sold with mortgages, consumer credits and credit cards, which revealed a number of practices that could cause detriment to consumers.
Fin Tech Regulation
ESMA: Crypto assets and their risks for financial stability : ESMA has been following these developments closely for several years, including because of their risks to consumer protection (2), and outlines in this article the latest understanding of crypto-assets’ risks and transmission channels to financial markets.
ICMA co-signs joint trade association response to BCBS second consultation on the prudential treatment of crypto-assets exposures : The Associations’ comments aim to improve the mutual understanding of current and emerging risks of private digital assets that depend on cryptography and distributed ledger or similar technology,..
Finextra: Swift finds role as global hub for CBDCs and tokenised assets : Financial messaging network Swift has released the results of a trial that allowed digital currencies and assets to flow smoothly alongside, and interact with, their traditional counterparts by bridging between different distributed ledger technology (DLT) networks and existing payment systems
Economic Policies Impacting EU Finance
ECOFIN: Taxation: Anguilla, The Bahamas and Turks and Caicos Islands added to EU list of non-cooperative jurisdictions for tax purposes : The Council regrets that these jurisdictions are non-cooperative on tax matters and invites them to engage with the EU’s Code of Conduct Group in order to resolve the identified issues.
Brexit
Ukandeu: Why David Cameron called the 2016 referendum - and why he lost it : Tim Bale looks back at the 2016 Brexit vote and considers why David Cameron decided to call the referendum on the UK’s membership of the European Union – and why he went on to lose it.
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