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Highlights of my week: The `Swiss finish’ certainly put an end to 167 years of Credit Suisse though the complaints about the treatment of AT1 bonds may not last as long. Those who read Note 16 of CS’s latest Annual Report were warned about the write-down powers of FINMA but – in a display of astonishing ineptitude – the Swiss authorities did not spell out how the required conditions had been met and how it was simultaneously possible for the equity holders to be left with some value. Bond holders’ lawyers are not proving to be so reticent. The EU authorities protested that they would not up-end the standard hierarchies but seemed to stop short or promising that it would be enshrined in primary legislation as some observers are already calling for regulatory change to reflect some of the new technological realities. Back to the more mundane: the ECB successfully launched the new T2 wholesale payments system, EBA consulted on amendments to reporting aspects of the Fundamental Review of the Trading Book (FRTB), ESMA discussed the macro-prudential supervision of investment funds, and EFAMA criticised parts of the proposed EU Clearing rules. The ECB’s Annual Report described the slow progress of some banks in responding to Brexit’s impact on their management - triggering the desk-mapping review. London equity markets continue to lose ground to Paris and changing MiFID’s unbundling of research costs as well as making it easier to sell short in London may not reverse the trend!
Graham Bishop
Articles from 17-23 March 2023
Policy impacting Finance
SRB, EBA and ECB Banking Supervision statement on the announcement on 19 March 2023 by Swiss authorities : The Single Resolution Board, the European Banking Authority and ECB Banking Supervision welcome the comprehensive set of actions taken yesterday by the Swiss authorities in order to ensure financial stability. View Article
EURACTIV: Bank crisis: ECB’s Lagarde wants complete application of Basel III : The EU banking sector “remained strong” amid market turmoil in the US, President of the European Central Bank (ECB) Christine Lagarde confirmed on Monday (20 March), adding that she wants to see the “complete application” of Basel III bank capital requirements. View Article
Opening remarks by Andrea Enria, Chair of the Supervisory Board of the ECB on the failure of Silicon Valley Bank and its implications : The failure of some mid-sized US institutions earlier this month reminds us that specific features of a bank’s business model can make its balance sheet particularly vulnerable to interest rate risk. In extreme cases, this can turn rising interest rates from a boost to profits into an existential threat. View Article
SRB: EU vows to respect bondholders’ rights after Credit Suisse turmoil : FT article by SRB Chair: Single Resolution Board chair adamant Brussels will not take investors in bank debt ‘by surprise’ View Article
CEPR's Dewatripont, Praet, Sapir: The Silicon Valley Bank collapse: Prudential regulation lessons for Europe and the world : This column draws two main lessons in this respect. The first is that the episode should increase the resolve of public authorities to further improve the resolution framework in the EU. The second is that the extent of protection, in both Europe and worldwide, of short-term deposits that (large and small) companies rely upon for their ordinary business is flawed and needs to be adapted. View Article
Bruegel's Papadia: The European Central Bank’s latest move tells a clear story : The European Central Bank is right not to over-react to recent banking problems. ... ECB President Christine Lagarde told a clear story: recent banking problems in the United States and Switzerland are not serious enough for the ECB to change plans. View Article
City AM: Who’s going loco over Credit Suisse’s cocos? Here are the losers of the AT1 bond write-off : ...litigation firm Quinn Emanuel Urquhart & Sullivan saying it had now put together a multi-jurisdictional team of lawyers from Switzerland, the US and the UK to potentially act on behalf of the burnt bondholders. View Article
Finance Watch: A Reaction to the Banking Crisis: Reinforce international prudential and resolution rules : Here we go again. Pouring public money onto the flames of the latest bank failure. Clearly, the international rules adopted since 2008 are not sufficient to make for a stable system and moral hazard remains the dominant principle in banking. View Article
Project Syndicate's Reichlin: Lessons from the SVB Collapse : Although SVB was not deemed to be systemically important, its insolvency forced the US Fed to head off systemic contagion and exposed the inadequacy of the FDIC’s partial deposit insurance regime. The financial-stability framework adopted after the 2008 crisis obviously needs another overhaul. View Article
Eurogroup President Donohoe's report to the President of the Euro Summit of 24 March 2023 : The President of the Eurogroup, Paschal Donohoe, has sent a letter to the President of the Euro Summit, Charles Michel, to report on the work of the Eurogroup. The letter will inform the discussion that Leaders will hold at the Euro Summit on 24 March 2023. View Article
Hearing: Introductory statement by Andrea Enria, Chair of the Supervisory Board of the ECB : ...banks remained resilient and managed to smoothly navigate the changing geopolitical and macroeconomic environment. While the fast-paced adjustment of interest rates allowed the banking sector to reach record levels of profitability and improve its market valuations .. View Article
General Affairs Council - main results : UK - Windsor Framework; EUCO drafts on competitiveness, single market and the economy; European Semester View Article
Project Syndicate's Frankel: Fifty Years of Floating Currencies : The half-century since the official demise of the Bretton Woods system of fixed exchange rates has shown the benefits of what replaced it... its collapse was inevitable, and what looked like failure has given rise to a remarkably resilient regime. View Article
BUSINESSEUROPE Reform Barometer 2023 - The EU's global competitiveness under threat : Around 90% of our member federations consider that compared to our global competitors, the EU investment environment is less attractive than 3 years ago. View Article
Banking Union
ECB Annual Report on supervisory activities 2022 : Introductory interview with Andrea Enria, Chair of the Supervisory Board View Article
ECB: Successful launch of new T2 wholesale payment system : Eurosystem’s new real-time gross settlement (RTGS) system and central liquidity management tool went live on 20 March 2023; New consolidated payment system successfully completed first day of operations; Upgraded system to contribute to harmonisation and efficiency of Europe’s financial markets View Article
MEPs quiz EU bank supervisors on implications of Silicon Valley Bank failure : MEPs on Tuesday quizzed the EU’s top bank supervisors on the possible implications of the Silicon Valley Bank’s failure for financial stability in Europe. View Article
MEPs adopt series of recommendations to fight tax abuse and money laundering : Following months of work, MEPs on Tuesday adopted a comprehensive set of recommendations stemming from the lessons learnt from the Pandora papers and other similar data leaks. View Article
EBA consults on amendments to the reporting on the Fundamental Review of the Trading Book : the consultation paper expands the reporting on the Fundamental Review of the Trading Book (FRTB) approaches to own funds requirements for market risks. The expanded reporting will provide supervisors with the necessary data to monitor institutions’ compliance with the prudential rules. View Article
Capital Markets Union
ESMA: The macro-prudential supervision of investment funds – from a global debate to a balanced European regulatory frameworks : ...an update on the ongoing regulatory agenda for the investment management sector at both international and European levels, with a particular focus on financial stability and macro prudential supervision. View Article
ESMA raises concerns with the proposed changes to the insider list regime : The proposed changes, which were put forward by the European Commission in December 2022 as part of the Listings Act proposal, mean that insider lists would only include persons who have regular access to inside information, and not those who may have access to such information on a case by case basis. View Article
IPE's Serenelli: Asset owners target top management performance at AGMs : USS: Looking ahead to the 2023 voting season, we’ll consider voting against management on various systemic risks that have a financial impact,” a spokesperson for the scheme told IPE. View Article
ALFI provides feedback to the European Commission on the EMIR 3 Review : LFI provided feedback to the European Commission measures to make EU clearing services more attractive and resilient (EMIR 3).. We support the measures that simplify clearing processes in the EU. View Article
EFAMA: Mandated levels of EU Clearing run counter to competitive and efficient clearing systems : The measures to enhance EU CCP attractiveness should in themselves draw greater clearing activity organically, without the need to introduce an active account obligation. View Article
ISDA: Progress on Global Transition to RFRs in Derivatives Markets : The paper also explores several current topics related to the RFR transition, including synthetic LIBOR rates, term RFRs, credit-sensitive rates and the modification of clearing and trading requirements. View Article
Digital evolution in debt issuance - ICMA primary markets technology directory review : The digital evolution of issuing bonds is driving both new solutions and at the same time vendor consolidation. ICMA's most recent assessment of its primary markets technology directory has identified several new and emerging platforms designed to facilitate the issuance of debt instruments. View Article
Environmental, Social, Governance (ESG)
IASB proposes narrow-scope amendments to classification and measurement requirements for financial instruments : Feedback from the Dec 2022 review indicated that most stakeholders believed those requirements achieved their intended purpose, whilst identifying specific areas for further enhancement or clarification. The exposure draft published today responds to these points. View Article
FCA outlines where improvements are needed in ESG benchmarks : We have now completed a preliminary review on ESG benchmarks. This found that the overall quality of ESG-related disclosures made by benchmark administrators was poor. View Article
IAIS: Public Consultation on Climate risk supervisory guidance – part one : Climate change is a key strategic theme for the IAIS as it is a source of financial risk, which impacts the resilience of individual insurers as well as financial stability. View Article
Protecting Customers
EIOPA supervisory statement takes aim at unfair ‘price walking’ practices : The price customers pay for insurance coverage typically reflects the individual risk profile and the overall costs incurred by insurers. However, some manufacturers adjust prices based on characteristics that are related neither to the underlying risks nor the cost of service. View Article
Fin Tech Regulation
ECA: Audit preview 02/2023: Artificial intelligence in the EU : The European Court of Auditors has started working on an audit to assess the Commission’s actions in creating a European framework for the development of artificial intelligence. View Article
Commissioner McGuinness at event in European Parliament “From Open Banking to Open Finance: what does the future hold?” : ..the Commission will adopt our proposal on Open Finance before the summer... And essentially, this is all about data, information. View Article
Brexit and the City
ECB: Follow-up on Brexit: outcome of the desk-mapping review - Integrating Brexit banks into European banking supervision : Integrating Brexit banks into European banking supervision. The key overarching objective was to ensure that all significant institutions have prudent/sound risk management frameworks in place, as well as a local presence which enables effective supervision commensurate with the risks that they take View Article
FT: Ditching Mifid research rules will help London market but is no panacea : Unwinding rules on the cost of research should be part of a package of broader reforms View Article
Bloomberg: London Losing to Paris in Battle of Equity Markets : Paris bourse market cap exceeds London’s by $250 billion; UK market attractiveness is in question after listing setbacks View Article
FT: Post-Brexit UK should pursue short-selling reforms to boost markets : A nonsensical EU requirement on disclosure should be scrapped... The writer is the chief investment officer of Muddy Waters Capital View Article
Brexit
EURACTIV: UK backs NI deal reforms, but former PMs Johnson and Truss lead rebellion : UK lawmakers gave the green light to a major provision on an EU-UK plan to reform the Northern Ireland protocol, despite a rebellion led by former Prime Ministers Boris Johnson and Liz Truss. View Article
UK in changing EU: Brexit trade and manufacturing - a Midlands perspective : David Bailey outlines the findings of a new UK in a Changing Europe working paper which examines how Brexit has impacted on manufacturing in the UK Midlands and the extent to which such firms are reconfiguring their supply chains. View Article
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