ECB in focus
ECB in focus is our blog dedicated to the banking supervisory activities of the European Central Bank (ECB). We report on key developments in European banking regulation led by the ECB as part of the Single Supervisory Mechanism (SSM).
SOME OF OUR RECENT POSTS
EU court's judgment sheds new light on how the ECB should apply national administrative measures
04 April 2024
The General Court of the European Union recently delivered its judgment on a dispute between an Austrian bank (BAWAG) and the ECB over the imposition of an administrative measure for breaching the large exposure limits. The case raises interesting questions about the competence of the ECB to apply national law provisions and the interpretation of national law implementing EU directives.
Outsourcing on the rise: ECB warns of increased reliance on third party providers
07 March 2024
In its recent Supervisory Newsletter the ECB highlights the jump in the number of outsourcing contracts as banks have increased their reliance on non-EU providers for IT related services.
Culture matters—The ECBs approach to assessing banks' culture and risk behaviour
26 September 2023
A recent speech by Frank Elderson, Vice-Chair of the ECB Supervisory Board, places culture firmly on the supervisory agenda. Mr Elderson considers how culture can drive risk behaviour in banks and how the ECB goes about assessing banks' culture.
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1. Bank regulation
1.1 PRUDENTIAL REGULATION
a) General
(i) International
Status: Final
The FSB has set out the outcomes of its Plenary that met on 3 and 4 December. Points of interest include: (i) climate-related financial risks – the Plenary discussed progress in the four areas of the roadmap for addressing climate-related financial risks as well as EMDE-specific climate vulnerabilities and ways to help address those vulnerabilities. The FSB will issue its next report on progress with the roadmap in mid-2025; (ii) non-bank financial intermediation (NBFI) – the FSB will shortly publish its final policy recommendations on measures to enhance liquidity preparedness of non-bank market participants for margin and collateral calls and will be launching a consultation on proposed policy recommendations to monitor and address financial stability risks from NBFI leverage. The Plenary agreed to steps for how to overcome data issues that are hampering efforts to further improve the ability of authorities to effectively assess vulnerabilities stemming from the non-bank sector and to calibrate appropriate policies; (iii) 2025 work programme – the FSB agreed the work programme and confirmed the extension of Klaas Knot's term as FSB Chair until 1 July 2025. The finalised work programme will be published in early 2025.
Date of publication: 04/12/2024
b) Solvency/Own funds issues
(i) EU
Status: Final
The EBA has published final draft RTS on the conditions for determining whether an instrument attracting residual risk acts as a hedge. The RTS are part of the Phase 1 deliverables of the EBA roadmap on the implementation of the EU banking package in the area of market risk. The EU Banking Package introduces a provision in the residual risk add-on (RRAO) framework allowing the exemption from the RRAO charge for those instruments bearing residual risks that are, in turn, used to hedge instruments bearing residual risks. These RTS specify when an instrument qualifies as a hedge for the purpose of the exemption and when not. The EBA will submit the final draft RTS to the EC for endorsement, after which they will be subject to scrutiny by the EP and the Council. If neither object, the Delegated Regulation containing the RTS will be published in the OJ.
Date of publication: 17/12/2024
Status: Consultation
Deadline for the submission of comments: 10/03/2024
The EBA has launched a public consultation on its draft RTS clarifying and enhancing the conditions for assessing material model changes (MMC) and extensions following a review of the related Delegated Regulation. This review aimed to align the existing RTS with the amendments brought in by the CRR 3, and to introduce amendments to enhance the supervisory effectiveness of the approval process for model changes.
Date of publication: 09/12/2024
Status: Final
The EBA has finalised its draft RTS on the method for identifying the main risk driver of a position and for determining whether a transaction represents a long or a short position under Article 94(1) CRR, as amended by CRR3. The proposed general method to identify the main risk drivers hinges on sensitivities defined under the market risk standardised approach or on add-ons defined under the standardised approach for counterparty credit risk (SA-CCR). For the determination of the direction of the positions, the methodology is aligned with the one set out in the RTS on SA-CCR. A simplified method has also been included, covering relatively simple instruments, such as fixed-rate bonds, floating-rate notes, stocks, forwards, futures, simple swaps and plain vanilla options.
The EBA will submit the final draft RTS to the EC for endorsement, after which they will be subject to scrutiny by the EP and the Council before being published in the OJ.
Date of publication: 06/12/2024
c) Securitisation
(i) Germany
BaFin: Consultation 12/2024 regarding a Circular on securitisation (Konsultation 12/2024 über ein Rundschreiben zur Verbriefung)
Status: Consultation
Deadline for the submission of comments: 30/12/2024
Bafin has launched a consultation regarding a Circular on securitisation, specifying the criteria for simple, transparent and standardised (STS) balance sheet securitisation. The Circular also aims to implement modified Guidelines for asset-backed commercial paper (ABCP) and non-ABCP securitisations. With the circular, BaFin is adopting the EBA Guidelines on the STS criteria for on-balance-sheet securitisations into its administrative practice.
The circular is expected to apply from 15 January 2025.
Date of publication: 10/12/2024
(ii) EU
ESMA: Feedback on review of securitisation disclosure templates
Status: Final
ESMA has published a feedback statement summarising the responses it received to its consultation on the securitization disclosure templates under the Securitisation Regulation. The publication provides a detailed analysis of stakeholder feedback on the costs and benefits of revising the existing disclosure framework, in line with the four potential implementation options proposed in the CP.
Overall, respondents acknowledge the need for further improvements to the securitisation transparency regime but recommend postponing the template review due to concerns about its timeline in relation to a broader SECR review. In their responses stakeholders asked ESMA to prioritise short-term solutions that address the most pressing industry challenges, such as regulatory compliance costs, and the need for a simplified template for private securitisations.
Date of publication: 20/12/2024
d) Risk management/SREP/Pillar 2/Outsourcing/NPL
(i) Germany
BaFin: Protocol of the 19. meeting of the expert committee on interest rate risks in the investment book (Protokoll der 19. Sitzung des Fachgremiums Zinsänderungsrisiko im Anlagebuch)
Status: Final
BaFin has published the protocol of the 19. meeting of the expert committee on interest rate risks in the investment book. The committee has been discussing the implementation of of the 8. update to the revised minimum requirements for risk management (MaRisk-Novelle), with regard to the IRRBB (Interest rate risk in the banking book) and the CSRBB (Credit Spread Risk in the Banking Book).
Date of publication: 17/12/2024
(ii) EU
ECB: SREP results 2024 and supervisory priorities 2025-2027
Status: Final
The ECB has published the results of its Supervisory Review and Evaluation Process (SREP) for 2024 and its supervisory priorities for 2025-27. The SREP found that ECB-supervised euro area banks had strong capital and liquidity positions and remained resilient in 2024. The average overall SREP score remained stable at 2.6. Geopolitical risks (e.g., the conflict in the Middle East, the Russia-Ukraine war and US/China tensions over Taiwan) persist and are often not priced in on financial markets until they materialise, meaning the ECB is prioritising strengthening resilience to geopolitical shocks. The ECB also calls for heightened vigilance due to the weakening macroeconomic outlook and structural changes in the economy.
The ECB's supervisory priorities for 2025-27 include: (i) banks should strengthen their ability to withstand immediate macro-financial threats and severe geopolitical shocks; (ii) banks should remedy persistent material shortcomings in an effective and timely manner; and (iii) banks should strengthen their digitalisation strategies and tackle emerging challenges stemming from the use of new technologies. Each priority targets a specific set of vulnerabilities in the banking sector, referred to as "prioritised vulnerabilities", for which the ECB has a set of strategic objectives and developed work programmes.
Date of publication: 17/12/2024
Status: Published in the OJ
Date of entry into force: 24/12/2024
Date of application: 25/06/2026
The EMIR 3 Directive has been published in the OJ. For more information, please see section 4.1 below.
Date of publication: 04/12/2024
(iii) International
BCBS: Final Guidelines for counterparty credit risk management
Status: Final
The BCBS has published the final version of its Guidelines for counterparty credit risk (CCR) management, replacing its 'Sound Practices for Banks' Interactions with Highly Leveraged Institutions' (originally published in January 1999). The Guidelines provide a supervisory response to the significant shortcomings that have been identified in banks' management of CCR, including the lessons learned from recent episodes of non-bank financial intermediary (NBFI) distress. The Guidelines include the need to: (i) conduct comprehensive due diligence both at initial onboarding and on an ongoing basis; (ii) develop a comprehensive credit risk mitigation strategy to manage counterparty exposures effectively; (iii) measure, control and limit CCR using a wide variety of complementary metrics; and (iv) build a strong CCR governance framework. Banks and supervisors are encouraged to take a riskbased and proportional approach in the application of the Guidelines. The BCBS will continue to monitor implementation of the Guidelines on an ongoing basis.
Date of publication: 11/12/2024
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