EBA Long Report - European Banking Authority - Europa

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Fragmentation and the Single Supervisory Mechanism There is evidence of increasing national retrenchment of both assets and liabilities for banks, with material scaling back of global financial activities – trade and commodity finance, international crossborder lending and leasing, trading and investment banking – as well as scaling back of intra-EU cross-border lending, especially into economies experiencing stress or recession. This increases the risk of fragmentation of the single market. Such fragmentation is costly and may affect the free movement of capital and funding, increasing inefficiencies and preventing the extension of credit in sectors and geographies where it may be used most effectively. There are both ‘private’ – i.e. linked to firms’ decisions – and ‘policy’ drivers to cross-border retrenchment tendencies. The ‘private’ drivers rest mostly with banks, and with wider market pressures that drive banks to exit assets (which may be wider sectors or regions) that are perceived as either non-core or risky compared with their own risk tolerance. One example of market funding shortages is in USD funding (the main currency in which global transactions are denominated) which since mid-2011 has led the large euro zone banks to pull back from these areas. Banks may also choose to scale back or exit capital-intensive activities, or activities that entail lower profitability. Indeed, earnings pressure in business models is leading banks to refocus on core activities, while reducing or exiting other business. In this respect, exiting cross-border interbank lending and deleveraging abroad may be linked to higher general risk aversion. Apart from being viewed as a strategic response to the crisis, cross-border retrenchment and the scaling back of related lending may have been reinforced by local regulators imposing in areas subject to their authority either explicit or implicit requirements to match liabilities and assets. In such cases, the banks facing difficulty in attracting funding in a particular market are under pressure to deleverage. Unilateral action by national supervisory authorities can weaken the single market, and can create potential pressure on the financial stability of cross-border groups at times of heightened uncertainty. Divestment of assets abroad may be also linked, for some banks under restructuring, to the application of EU State aid rules. Should this situation remain in place over the longer term, it could lead to more permanent negative consequences. On the one hand, lending to the real economy in some countries could be affected, especially in those where the large local banks are subsidiaries of cross-border groups. On the other hand, a relative marginalisation of the EU banking sector’s role in global financial transactions could have a lasting negative impact both on those global markets (as non-EU banks, while more active globally, are not expected to take up that important role to its full extent) and on the EU’s position in world trade and finance. The EBA thus continues to strongly support colleges of supervisors as the proper forum for discussion and agreement on appropriate supervisory measures for cross-border banking groups. In June 2012, the European Council decided that the countries of the euro zone, and other Member States that may wish to opt in, would create a single supervisory mechanism (SSM) for banks mainly as a response to the banking and sovereign crisis, and the December 2012 ECOFIN made specific Page 8 of 37
progress in this direction. The SSM, combined with other measures to drive further integration – such as the European Stability Mechanism (ESM) and, possibly, harmonised deposit guarantee scheme(s) – may also be used to combat fragmentation by strengthening the single market between the ‘participating’ countries, promoting banking union and reducing market inefficiencies. The EBA will continue pursuing its objectives of advancing towards an EU-wide single rulebook and promoting regulatory convergence across the Union, in both rules and practices. Page 9 of 37
Page 1 and 2: Risk Assessment of the European Ban
Page 3 and 4: Executive summary Since the publica
Page 5 and 6: 1. Introduction Purpose of the repo
Page 7: Policies and political commitments
Page 11 and 12: You envisage making material change
Page 13 and 14: Your bank can operate on a longerte
Page 15 and 16: Figure 6: Trends in reputational ri
Page 17 and 18: Your bank will have to to rely more
Page 19 and 20: Asset deleverage is an element of y
Page 21 and 22: You see threats to your retail depo
Page 23 and 24: exercise led to an increase in bank
Page 25 and 26: Figure 15: Coverage ratio (specific
Page 27 and 28: a. Residential mortgages. b. Consum
Page 29 and 30: practices for loans in arrears, unc
Page 31 and 32: The leverage of CfDs consists in al
Page 33 and 34: Appendix: Samples Below we list the
Page 35 and 36: Annex Descriptive statistics from t
Page 37: Balance Sheet Structure KRI Descrip

EBA Long Report - European Banking Authority - Europa

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