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Welcome to our Friends weekly e-mail.
Highlights of my week: Ahead of the IMF meetings, the global regulators published a set of reports on the banking turmoil of the spring, and whether `loss absorption’ needs to be expanded. But the impact of higher interest rates feeding through public debt into budgets was also discussed. The ESRB weighed in again about the systemic risks to the EU of third country CCPs. The FSB noted good progress on cross-border payments targets but complex collaborations still lie ahead. The EBA reported more good news from EU banks on new highs for capital ratios and a sharp rise in profitability resulting from higher interest rates. But it did highlight that risk exposures had only risen 10% - in nominal terms - in the last decade whereas bank capital is up 50%. The SSM is concerned that legislative proposals might undermine the corresponding good work on lowering NPLs. ESMA’s consultation on possibly shortening the settlement cycle to T+1 is stirring reactions while ISDA believes that existing data may hold the answer to concerns about a lack of transparency in derivatives exposures. The FT commented about the EU’s emergence as a “real player” in debt markets but PubAffairsBruxelles/Bruegel sketched in some scenarios about how much repaying the debt might cost the EU budget. The European Parliament approved the EU Green Bond standard and Commissioner McGuinness asked `what next?’ as this completed the EU’s legislation on core sustainable finance building blocks. In contrast, the UK’s FCA welcomed the Transition Plan Taskforce’s `recommendations’ and re-iterated its` intention to consult’ next year on disclosure `rules’ – emphasising that these will fit with ISSB international standards. So much for `taking back control’ and being a global leader… Graham Bishop Articles from 6-12 October 2023
Policy impacting Finance FSB review of 2023 bank failures assesses implications for the operation of the international resolution framework : US bank failures highlight the need to explore whether the scope of resolution planning requirements and loss-absorbing capacity requirements needs to be expanded. View Article
Annual Report highlights FSB’s work to assess and address vulnerabilities in the global financial system : The FSB is working to address current and emerging vulnerabilities, including on non-bank financial intermediation, crypto-assets and climate change. View Article
Klaas Knot: Introduction to the press conference on the Financial Stability Report : First of all, the transition to higher interest rates impairs the sustainability of government debt, as higher rates cause sovereign debt to weigh more heavily on government budgets. View Article
Basel Committee publishes report on 2023 banking turmoil, agrees to consult on climate and cryptoasset disclosures, and approves annual G-SI : Basel Committee publishes report on the 2023 banking turmoil; Agrees to consult on disclosure frameworks for climate-related financial risks and banks' cryptoasset exposures; Approves 2023 assessment exercise for global systemically important banks (G-SIBs). View ArticleESRB: Board comments on bank profitability, Active Account requirment (AAR) etc : The General Board exchanged views on financial stability implications of the active account requirement (AAR) proposed by the European Commission in the review of the European Market Infrastructure Regulation.... View Article
PubAffairsBruxelles/Bruegel: What will it cost the European Union to pay its economic recovery debt? : This debt and the interest on it must be repaid before 2058 from the EU budget. Here, we estimate what these costs could amount to. View Article
Delors Centre's Lindner/Redeker: Germany Needs a Europe Pact : They explain why Germany should refocus on the EU single market and develop an overall strategy for modernising the country and Europe. View Article
LSE's Ypi: Europe’s xhiro – the EU enlargement process : EU enlargement was one of the main topics on the agenda at the European Political Community summit in Granada on 5 October. Lea Ypi writes that much like an Albanian xhiro, Europe continues to go round in circles over the issue. View Article
EPC's Geist/Lavrelashvili: What can we expect from Fico's government in the EU...another Orban? : For now, Fico is doubling down on his anti-Ukrainian stance, ready to risk an open rift with the European socialists, where his party is still a member. But he is also a cynical pragmatist, desiring power, and impunity for corruption and misuse of power during his previous tenure. View Article
Banking Union FSB assesses progress toward achieving G20 cross-border payments targets : While there has been good progress, further action is required to achieve the targets and realise the broad benefits that will come from enhanced cross-border payments. This will require collaboration and engagement between and beyond the G20, involving both the public and private sectors. View Article
EU/EEA banks: benefits from rising interest rates are stabilising, the EBA says : The European Banking Authority (EBA) today published its Q2 2023 quarterly Risk Dashboard (RDB). Banks’ profitability and capital ratios increased further, while macroeconomic uncertainty weighed on loan growth. View Article
SSM blog - McCaul/Ibel: Keeping a tight lid on non-performing loans : The joint efforts of banks, policymakers and supervisors have so far proven to be effective in reducing NPLs to a fraction of what they were a few years ago. That is why we are very concerned about legislative proposals which could undermine the effective resolution of NPLs. View Article
SUERF: The European Commission’s crisis management and deposit insurance (CMDI) proposal increases system-wide liquidity risk: We agree with Lind and Berg (2023; SUERF Policy Note No. 306), who see no need to stray from the original ideas behind the BRRD, and disagree with Restoy (2023), who supports the European Commission’s proposal in his SUERF Policy Note No. 318. View Article
Bankenverband: Comments on the EU Commission’s draft Framework for Financial Data Access (FIDA) : View Article
EFAMA: New AML package needs clear rules that help identify beneficial owners : We stress that the rules on identifying customers’ beneficial owners have to be calibrated correctly and fit well within customer due diligence processes. View Article
Capital Markets Union ESMA consults on the potential impact of shortening the standard settlement cycle : This will help ESMA to assess the costs/benefits of a possible reduction of the settlement cycle in the EU; and identify any regulatory action to smooth the impact for EU market participants of the planned shortening of the settlement cycle to T+1 in other jurisdictions, such as the US. View Article
AFME welcomes ESMA Call for Evidence on shortening settlement cycles : This Call for Evidence is an important step in moving forward the debate on T+1 settlement. Moving to T+1 should not only be a question of “when”, but also “why” and “how”. View Article
ISDA: Hidden in Plain Sight? Derivatives Exposures, Regulatory Transparency and Trade Repositories : The data may well be hidden in plain sight – not easily understood, not readily functional, not easily shared among regulators and therefore not as useful as it might otherwise be. View Article
German Banking Industry Committee: Comments on FSB consultation: Evaluation on Effects of G20 Reforms on Securitisation : The consultation by the Financial Stability Board (FSB) “on the effects of G20 financial regulatory reforms on securitisation” is the start of a global discussion on the review of the securitisation framework View Article
ICMA Quarterly Report for the Fourth Quarter of 2023 : Topics: Resilience the watchword; Synthetic US dollar LIBOR: the remaining task in the bond market; Market integrity and greenwashing risks in sustainable finance; Shortening the settlement cycle to T+1; European secondary bond market data report H1 2023; FinTech and digitalisation View Article
EIOPA consults on the supervision of captive (re)insurers with a focus on intra-group transactions, the prudent person principle and governa : The Opinion aims at facilitating a risk-based and proportionate supervision of captive (re)insurance undertakings and further support the convergence of supervisory expectations in the context of creating a level playing field within the EU. View Article
InsuranceEurope: Industry sounds alarm on EIOPA’s supervision of reinsurance plans : Insurance Europe notes that it is unclear what problem EIOPA is aiming to address. The federation further argues that the choice of a Statement is disproportionate and overreaching, and using an alternative tool, such as a supervisory handbook, would be more appropriate. View Article
EIOPA sets out its strategic priorities for 2024 : EIOPA will focus on managing the uncertainty in times of transformation so that the insurance and pensions sectors can continue to deliver value to policyholders and beneficiaries, to business and the EU economy. View Article
FT: EU becomes ‘real player’ in debt markets but faces investor scepticism : Bloc’s debt pile set to reach €900bn by 2026 but it pays a higher interest rate than France as investors fret about liquidity View Article
Environmental, Social, Governance (ESG) Parliament: Greening the bond markets: MEPs approve new standard to fight greenwashing : First standard in the world to define green bonds; Issuers complying with the standard also commit to green transition plans; Rules also regulate external reviewers of European green bonds View Article
Commissioner McGuinness at DG FISMA event, The Sustainability Finance Disclosure Regulation - what next? : So more than five years on, I think we've done well overall. We today have in place the core building blocks of the EU sustainable finance framework. Including the Taxonomy, different disclosures, benchmarks and the European Green Bond Standard.. View Article
ESMA provides analysis on issuers’ potential benefits from an ESG pricing effect : In the article, ESMA notes that it cannot confirm a systematic pricing benefit for any ESG-labelled debt type as of March 2023. However, issuers of ESG bonds did benefit from a statistically significant pricing in the past driven by their issuer-level ESG credentials. View Article
Bloomberg: Bank Watchdog Moves Ahead With New ESG Rule Feared Across Europe : Banks seen reporting low alignment with EU sustainability list; Green asset ratio is part of EU’s sustainable finance push View Article
ICMA releases new paper on market integrity and greenwashing risks in sustainable finance : ...our analysis of greenwashing concerns in the sustainable finance market from a global perspective, while adding references to external and inhouse research, as well as providing five high level recommendations to policy makers and regulators. View Article City AM: More Brits believe in aliens than understand ESG: new polling : ESG is one of the City’s favourite buzzwords but more Brits believe the government is covering up the existence of aliens View Article
Protecting Customers Asking for a loan will be safer in the EU after the Council’s final approval of the Consumer Credit Directive : The Council has today adopted the consumer credit directive, which aims to enhance the protection for European consumers applying for credit. The revised legislation repeals and replaces the current 2008 directive on consumer credit agreements. View Article
Fin Tech Regulation ESMA assesses market developments in DeFi and explores the smart contracts system : Risks to financial stability are not meaningful at this point owing to DeFi’s small size but require monitoring. In addition, DeFi’s unique features have led to new market manipulation issues that need to be addressed. View Article
Cyber Resilience Act: BEUC's recommendations for the Trilogue negotiations : There are aspects of significant concern which remain, notably the proposal from Council to reduce - instead of expand – the list of critical products in Annex III (enshrining the absence of consumer devices while removing essential products for internet security, such as internet routers).. View Article
FBF: Cybersecurity: the French are aware of the sensitivity of their banking data, but sometimes not sufficiently vigilant : While nearly nine out of 10 French people consider their banking data to be sensitive, they take fewer precautions against cyber-risks. View Article
Project Syndicate's Caffarra: Europe’s Tech Regulation Is Not an Economic Policy : While the European Union's groundbreaking Digital Markets Act was a positive step, simply applying outdated and ineffective competition rules to the tech sector will not drive economic progress. To spur innovation, Europe should leverage antitrust to champion broader social and economic goals. View Article
Brexit and the City FCA welcomes the launch of the Transition Plan Taskforce Disclosure Framework : The TPT Framework recommends disclosure of a company’s strategic climate ambition, and how this is reflected in its implementation and engagement approaches, its governance and accountability arrangements, and its financial plans. View Article
City AM: London Stock Exchange: Why it’s not all doom and gloom for the City’s embattled bourse : Firms listed on London’s embattled bourse raised some £14.6bn in follow-on equity issuance in the first nine months of the year, where listed firms raise cash by issuing more shares to the market, according to new figures from PwC. View Article
Brexit Exploring ‘Bregret’: public attitudes to Brexit, seven years on : Voters feel negatively about the course that Brexit has taken so far. Even among Leave voters, less than one in five feel that Brexit is going well, although most seem hesitant about making a definitive assessment. View Article
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