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Public hearing with Andrea Enria, Chair of the ECB Supervisory Board

10-12-2019

This note is prepared in view of a regular public hearing with the Chair of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, which will take place on 12 December 2019. The briefing addresses (i) Single Supervisory Mechanism (SSM) priorities for 2020, (ii) Banks’ profitability issues; (iii) Stress testing developments; (iv) some individual bank cases; (v) supervisory issues and policies (anti-money laundering, Brexit, and impact of Basel III and IFRS9), and (vi) the completion ...

This note is prepared in view of a regular public hearing with the Chair of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, which will take place on 12 December 2019. The briefing addresses (i) Single Supervisory Mechanism (SSM) priorities for 2020, (ii) Banks’ profitability issues; (iii) Stress testing developments; (iv) some individual bank cases; (v) supervisory issues and policies (anti-money laundering, Brexit, and impact of Basel III and IFRS9), and (vi) the completion of the Banking Union.

The main factors for the subdued profitability of significant banks in the Banking Union

09-12-2019

Most significant institutions in the euro area generate returns below the risk-adjusted rate required by investors. This paper surveys some recent studies on the causes of this low profitability, and then discusses several actions that the SSM may want to undertake, to support banks in their quest for higher returns.

Most significant institutions in the euro area generate returns below the risk-adjusted rate required by investors. This paper surveys some recent studies on the causes of this low profitability, and then discusses several actions that the SSM may want to undertake, to support banks in their quest for higher returns.

Extern avdelning

A. Resti

Main factors for the subdued profitability of significant banks in the Banking Union

09-12-2019

There is no “one-size-fits-all” strategy to achieve viable profitability, but all banks need good strategic steering and risk management capabilities to adjust their business mix to changes in the operating environment. Banks have already taken actions to enhance profitability and the room of manoeuvre for the future is not that ample. Policy makers can take further initiatives to fix structural inefficiencies and provide better conditions for banks to enhance profitability. These concerted actions ...

There is no “one-size-fits-all” strategy to achieve viable profitability, but all banks need good strategic steering and risk management capabilities to adjust their business mix to changes in the operating environment. Banks have already taken actions to enhance profitability and the room of manoeuvre for the future is not that ample. Policy makers can take further initiatives to fix structural inefficiencies and provide better conditions for banks to enhance profitability. These concerted actions would help reduce the gap between banks’ RoE and cost-of-equity.

Extern avdelning

B.Bruno, E.Carletti, EUI

Main factors for the subdued profitability of significant banks in the Banking Union

09-12-2019

In this paper we argue that the own findings of the SSM THEMATIC REVIEW ON PROFITABILITY AND BUSINESS MODEL and the academic literature on bank profitability do not provide support for the business model approach of supervisory guidance. We discuss in the paper several reasons why the regulator should stay away from intervening in management practices. We conclude that by taking the role of a coach instead of a referee, the supervisor generates a hazard for financial stability.

In this paper we argue that the own findings of the SSM THEMATIC REVIEW ON PROFITABILITY AND BUSINESS MODEL and the academic literature on bank profitability do not provide support for the business model approach of supervisory guidance. We discuss in the paper several reasons why the regulator should stay away from intervening in management practices. We conclude that by taking the role of a coach instead of a referee, the supervisor generates a hazard for financial stability.

Extern avdelning

T.Farina, J-P.Krahnen, L.Pelizzon, M.Wahrenburg

Thematic Digest on Economic Governance in the EU - December 2019

06-12-2019

This document presents a selection of thematic briefings in the area of EU economic governance recently published by the Economic Governance Support Unit of the European Parliament. They are notably related to the implementation of the European Semester for economic policy coordination. These thematic documents are drafted and kept updated on a regular basis, following relevant developments. All papers published by EGOV are available on the ECON homepage.

This document presents a selection of thematic briefings in the area of EU economic governance recently published by the Economic Governance Support Unit of the European Parliament. They are notably related to the implementation of the European Semester for economic policy coordination. These thematic documents are drafted and kept updated on a regular basis, following relevant developments. All papers published by EGOV are available on the ECON homepage.

Main factors for the subdued profitability of significant banks in the Banking Union

05-12-2019

This paper examines how the ECB should respond to the currently low profitability of significant banks in the Banking Union. The subdued profitability appears to be a structural problem caused by overbanking, with too many bank assets chasing too few profitable banking sector opportunities. To address the root problem of overbanking, the ECB should use its existing supervisory powers to require significant banks with unsustainably low profitability to restructure reducing their overall size. This ...

This paper examines how the ECB should respond to the currently low profitability of significant banks in the Banking Union. The subdued profitability appears to be a structural problem caused by overbanking, with too many bank assets chasing too few profitable banking sector opportunities. To address the root problem of overbanking, the ECB should use its existing supervisory powers to require significant banks with unsustainably low profitability to restructure reducing their overall size. This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.

Extern avdelning

Ata Can Bertay, Harry Huizinga

Public hearing with Elke König, Chair of the Single Resolution Board

02-12-2019

This note is prepared in view of a public hearing with the Chair of the Single Resolution Board (SRB), Elke König who will inter alia present the SRB Work Programme for 2020. The briefing addresses (i) the SRB Work Programme 2020, (ii) the state of play of SRB resolution planning, (iii) the SRB policy in relation to the targets on minimum requirements of own funds and eligible liabilities (MREL), (iv) external papers commissioned by the ECON Committee on ‘the resolvability of banks - what is the ...

This note is prepared in view of a public hearing with the Chair of the Single Resolution Board (SRB), Elke König who will inter alia present the SRB Work Programme for 2020. The briefing addresses (i) the SRB Work Programme 2020, (ii) the state of play of SRB resolution planning, (iii) the SRB policy in relation to the targets on minimum requirements of own funds and eligible liabilities (MREL), (iv) external papers commissioned by the ECON Committee on ‘the resolvability of banks - what is the status quo’, (v) individual cases of banks and some follow-up to an individual resolution case (Banco Popular, including the ECA’s report on contingent liabilities), (vi) recent Banking Union developments, ahead of the Eurogroup report on EDIS, (vii) the SRB disclosure framework, and (viii) Brexit

A new neighbourhood, development and international cooperation instrument

29-11-2019

In the context of the Commission's proposal for a multiannual financial framework (MFF) for the 2021-2027 period, on 14 June 2018 the Commission published a proposal for a regulation establishing the Neighbourhood, Development and International Cooperation Instrument (NDICI), with a proposed budget of €89.2 billion (in current prices). Parliament adopted its first-reading position in plenary on 27 March 2019. MEPs agreed to accept a single instrument, but called for a stronger role for Parliament ...

In the context of the Commission's proposal for a multiannual financial framework (MFF) for the 2021-2027 period, on 14 June 2018 the Commission published a proposal for a regulation establishing the Neighbourhood, Development and International Cooperation Instrument (NDICI), with a proposed budget of €89.2 billion (in current prices). Parliament adopted its first-reading position in plenary on 27 March 2019. MEPs agreed to accept a single instrument, but called for a stronger role for Parliament on secondary policy choices, through delegated acts, and for the budget for the instrument to be increased by nearly €4 billion, to €93.154 billion. MEPs also specifically called for an increase in the funds allocated to human rights and democracy activities, the percentage of funding that fulfils the criteria for official development assistance, and funds that support climate and environmental objectives. Moreover, Parliament's amendments include the introduction of gender mainstreaming targets, the earmarking of certain financial allocations, the suspension of assistance in case of human rights violations, and the reduction of the emerging challenges and priorities cushion to €7 billion. The Council adopted a partial mandate on 13 June 2019, and an additional mandate – on the European Fund for Sustainable Development (EFSD+) – on 25 September 2019. Following the committees' decision of 8 October 2019 to enter into interinstitutional negotiations on the basis of Parliament's first-reading position, a first trilogue meeting took place on 23 October 2019. The second is scheduled for 5 December 2019. Fourth edition. The 'Legislation in Progress' briefings are updated at key stages throughout the legislative procedure.

Impediments to resolvability of Banks

29-11-2019

This paper gives an overview of the seven aspects of resolvability defined in 2019 by the Single Resolution Board, and then assesses progress in two key areas, based on evidence gathered from public disclosures made by the 20 largest euro-area banks. The largest banks have made good progress in raising bail-in capital. Changes to banks’ legal and operational structures that will facilitate resolution will take more time. Greater transparency would make it easier to achieve the policy objective of ...

This paper gives an overview of the seven aspects of resolvability defined in 2019 by the Single Resolution Board, and then assesses progress in two key areas, based on evidence gathered from public disclosures made by the 20 largest euro-area banks. The largest banks have made good progress in raising bail-in capital. Changes to banks’ legal and operational structures that will facilitate resolution will take more time. Greater transparency would make it easier to achieve the policy objective of making banks resolvable.This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.

Extern avdelning

Alexander Lehmann

Implementation of the Stability and Growth Pact (November 2019)

28-11-2019

This document gives an overview of key developments under the preventive and corrective arms of the Stability and Growth Pact (SGP) on the basis of (1) the latest Council decisions and recommendations in the framework of the SGP; (2) the latest European Commission (COM) economic forecast; and (3) the latest COM Opinions on the Draft Budgetary Plans (DBPs) of euro area Member States. The document is regularly updated.

This document gives an overview of key developments under the preventive and corrective arms of the Stability and Growth Pact (SGP) on the basis of (1) the latest Council decisions and recommendations in the framework of the SGP; (2) the latest European Commission (COM) economic forecast; and (3) the latest COM Opinions on the Draft Budgetary Plans (DBPs) of euro area Member States. The document is regularly updated.

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