Après l'avertissement de la BCE, les superviseurs nationaux pourraient acter des soutiens supplémentaires en capital.

European authorities warn of risks to financial stability

Posted on September 30, 2022 at 8:44 PM

This is the first time since the sovereign debt crisis in Europe: the European Systemic Risk Board (ESRB), chaired by Christine Lagarde, president of the European Central Bank (ECB), issues a “general warning” to the financial system.

“The risks to financial stability in the Union and the probability of extreme risk scenarios materializing have increased,” he said at the end of a meeting held on September 22, even before the storm in the markets unleashed by the new British Government, the conclusions of which were communicated on Thursday night.

“Growing geopolitical tensions have led to rising energy prices, causing financial difficulties for companies and households that are still recovering from the economic consequences of Covid,” stresses the ESRB, which brings together supervisors and national central banks from the European Union. And higher-than-expected inflation is tightening financial conditions. This makes it more complicated to pay the debt of economic actors.

Downside risks in the prices of certain assets threaten to trigger significant losses in market value and amplify volatility. In the energy market, this has caused tensions in the liquidity of certain participants, explains the ESRB.

“Perfect storm”

“We have the ingredients for a perfect economic storm” next year, said Raimund Roeseler, head of banking supervision at the German financial police (BaFin).

The deteriorating macroeconomic outlook is also weighing on asset quality and bank profitability prospects, which are also affected by structural factors such as excess capacity, competition with new players in financial services, and cyber and weather exposure. .

“Private institutions, market participants and competent authorities need to continue to prepare for such extreme risk prospects,” warns the ESRB.

The committee called on supervisors in 30 countries to ensure institutions are sufficiently capitalized to weather a deteriorating environment. At this time, it does not make recommendations in terms of capital, dividends or remuneration… In the midst of the Covid crisis, in 2020, the European authorities imposed a ban on the payment of dividends to banks.

Banks, “first line of defense”

“Banks can act as the first line of defense by ensuring that their provisioning and capital policy correctly takes into account anticipated and unforeseen losses that could be induced by the deterioration of the risk environment,” judges the ESRB, which also requires attention. extreme to liquidity risks, the very lifeblood of banks in times of stress.

Some financial supervisors do not fully adhere to this hard line, expressing their surprise that the Committee has not taken into account the increase in margins linked to the increase in interest rates, which could consolidate the profitability of the system banking.

“We must not subject the financial system to unacceptable restrictions. In several countries like France, loans are at fixed rates, which acts as a buffer against market effects and limits the risk of default, says a European banker. Faced with this crisis, which hits the energy sector especially, the States will take the necessary measures if necessary, or even nationalize companies under too much pressure, such as Uniper in Germany”.

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