Ago 042018

The European Central Bank (ECB) released the results of the 2018:Q3 predictions on macroeconomic conditions in the Euro Zone. The main findings are summarized in three points:

  • HICP inflation expectations revised upwards for 2018 and 2019, while unchanged for 2020; longer-term expectations remained stable at 1.9%
  • Real GDP growth expectations revised downwards for 2018 and 2019, but unchanged for 2020
  • Unemployment rate expectations little changed

Respondents to the ECB Survey of Professional Forecasters (SPF) for the third quarter of 2018 reported point forecasts for annual HICP inflation averaging 1.7% for each of 2018, 2019 and 2020. Compared with the previous survey round, this represents upward revisions of 0.2 percentage point for 2018 and 0.1 percentage point for 2019, but no change to the expectation for 2020. Average longer-term inflation expectations (which, like all other longer-term expectations in this SPF, referred to 2023) remained stable at 1.9%.

SPF respondents’ expectations for real growth in euro area GDP averaged 2.2%, 1.9% and 1.6% for 2018, 2019 and 2020, respectively. This represents downward revisions of 0.2 percentage point for 2018 and 0.1 percentage point for 2019, but no change for 2020. Average longer-term expectations for real GDP growth remained unchanged at 1.6%.

Unemployment rate expectations were little changed, standing at 8.3%, 7.9% and 7.6% for 2018, 2019 and 2020, respectively, and 7.5% for the longer term.


Source: European Central Bank

Ago 042018

The Bank for International Settlement published the statistical results for end-of-March 2018 on global liquidity indicators. The results are summarized as follows.

  • US dollar credit to non-bank borrowers outside the United States rose to $11.5 trillion at end-March 2018, up by 7% over the previous year.
  • Euro-denominated credit to non-bank borrowers outside the euro area grew at an annual pace of 10%, reaching €3.1 trillion at end-March 2018.
  • US dollar credit to emerging market economies (EMEs) rose to $3.7 trillion at end-March 2018. The expansion was fuelled by international debt securities, which grew at an annual rate of 16%.

US dollar and euro credit to non-residents continued to expand

US dollar and euro credit to non-residents continued to expand
Graph 1: Annual growth of foreign currency-denominated credit to non-resident non-banks. Source: BIS global liquidity indicators.

US dollar credit to non-bank borrowers outside the United States rose to $11.5 trillion at end-March 2018, up by 7%over the previous year (Graph 1). Growth continued to be propelled by debt securities, which increased by 11%. Loans increased at a more modest pace of 3%. Since 2012, the growth of US dollar borrowing in debt securities markets has consistently outpaced that in loan markets. At end-March 2018, debt securities accounted for 52% of outstanding US dollar-denominated credit, up from 44% at end-2011.

Euro-denominated credit to non-bank borrowers outside the euro area also continued to expand at a rapid pace. It grew at an annual rate of 10% as of end-March 2018. The latest increase took its outstanding stock to €3.1 trillion.

Debt securities propelled the growth of US dollar credit to EMEs

Debt securities propelled the growth of US dollar credit to EMEs
Graph 2: Annual growth of US dollar-denominated credit to non-bank borrowers in EMEs. Source: BIS global liquidity indicators

Foreign currency credit to non-bank borrowers in EMEs continued to expand in Q1 2018. US dollar-denominated credit to EMEs grew by 9% in the year to end-March 2018, continuing the steady recovery from the contraction of 2016 (Graph 2). The expansion was fuelled by international debt securities, which grew at an annual rate of 16%. Euro-denominated credit rose by around 11%, similar to its pace in previous quarters.

The US dollar accounted for by far the largest share of outstanding foreign currency credit to non-bank borrowers in EMEs, at $3.7 trillion at end-March 2018, followed by the euro (€644 billion, or about $790 billion) and the yen (¥8 trillion, or $70 billion).

BIS global liquidity indicators (PDF)

Ago 042018

The board of the International Organization of Securities Commissions (IOSCO) today published eight recommendations to assist trading venues and regulatory authorities in the implementation of mechanisms to manage extreme volatility and preserve orderly trading.

Following recent extreme volatility events, regulatory authorities and trading venues have been reviewing their approaches to managing extreme volatility, particularly through the use of volatility control mechanisms. Volatility control mechanisms seek to minimize market disruption triggered by events such as erroneous orders, by halting or temporarily constraining trading. IOSCO believes that these mechanisms support the goal of ensuring that markets are fair, efficient and transparent, thereby increasing market integrity and investor confidence.

Today ́s final report, Mechanisms Used by Trading Venues to Manage Extreme Volatility and Preserve Orderly Trading, therefore recommends that trading venues should have volatility control mechanisms to manage extreme volatility and these mechanisms should be appropriately calibrated and monitored.

The report assists trading venues and regulatory authorities in implementing, operating and monitoring volatility control mechanisms by making recommendations that trading venues should, among other things, regularly monitor volatility control mechanisms to ensure they are working as designed and identify circumstances that would require the mechanisms to be re-calibrated. Trading venues also should make information available about volatility control mechanisms and when they are triggered to regulatory authorities, market participants and, if appropriate, the public.

Because of the importance of information sharing and communication among trading venues, the report recommends that where the same or related instruments are traded on multiple trading venues in the same jurisdiction, trading venues should communicate with one another when volatility mechanisms are triggered, as appropriate. Communication among trading venues may also be appropriate where the same or related instruments are traded in different jurisdictions and a volatility control mechanism is triggered.

The report also identifies the more recent development and use of price constraint mechanisms that, rather than simply halting trading, reject or constrain certain orders to allow trading and price formation to continue.

The report is part of IOSCO’s ongoing work on how technology is changing the way markets operate and how regulators and markets are responding to these changes. Specifically, the report builds on the recommendations in IOSCO ́s 2011 report Regulatory Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency, which addressed the broad technological changes impacting markets, including high frequency trading and measures used to address volatility, including trading halts, circuit breakers and price limits.

Ago 042018

The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) setting out conditions for securitisation to be deemed homogeneous. Homogeneity is one of the crucial requirements for a securitisation transaction to be assessed as simple, transparent and standardised (‘STS’) and to be eligible for more risk-sensitive risk weights under the new EU securitisation framework. Homogeneity is also a key element for investors when assessing the underlying risks and performing their due diligence.

According to the conditions specified in the RTS, homogeneous exposures need to be underwritten according to similar underwriting standards and serviced according to similar servicing procedures. In addition, they need to fall within the same asset category. To facilitate the assessment of homogeneity, the RTS specify a non-exhaustive list of the most common asset categories, reflecting the market practice. Finally, for the majority of these asset categories, the underlying exposures need to be homogeneous with reference to at least one of the homogeneity factors, such as type of obligor, ranking of security rights, jurisdiction, or type of immovable property.

The conditions of the homogeneity have been designed from the perspective of investors, so as to facilitate the investors’ assessment of the underlying risks on the basis of common methodologies and parameters.  The RTS are applicable to both asset-backed commercial paper (ABCP) and non-ABCP securitisations.

EBA Final Draft Regulatory Technical Standards (PDF)

Lug 262018

The European Central Bank (ECB) published on the 24th of July the results of the euro area bank lending survey collected in July 2018. These results can be summarized in three main points:

  • Easing credit standards and increasing demand across all loan categories continued to support loan growth
  • Banks expect continued net easing of credit standards in all segments for the third quarter
  • Tightening impact on credit standards from banks’ non-performing loans is diminishing

Credit standards for loans to enterprises eased in net terms in the second quarter of 2018, according to the July 2018 bank lending survey (BLS). The net easing (-3%) of credit standards – i.e. banks’ internal guidelines or loan approval criteria – follows on from an easing of credit standards (-8%) for loans to enterprises in the previous quarter and was in line with banks’ expectations in the previous survey round. In addition, credit standards for loans to households for house purchase eased (net percentage of reporting banks at -8%, after -11%), and credit standards for consumer credit and other lending to households also eased (-3%, unchanged from previous period). Across the three segments, competitive pressure and risk perceptions had an easing impact on credit standards, while banks’ cost of funds and balance sheet constraints and their risk tolerance were broadly neutral. For the third quarter of 2018, banks expect a net easing of credit standards in all three segments.

Banks’ overall terms and conditions (i.e. banks’ actual terms and conditions agreed in the loan contract) on new loans eased across all loan categories in the second quarter of 2018, driven mainly by a narrowing of margins on average loans, while margins on riskier loans also eased across all loan categories, albeit to a lesser extent.

Net demand continued to increase across all loan categories in the second quarter of 2018. The net increase in demand for loans to enterprises was driven mainly by the general level of interest rates, inventories and working capital, and M&A activity. Net demand for housing loans continued to be driven mainly by the low general level of interest rates, favourable housing market prospects and consumer confidence. Consumer confidence, spending on durable goods and the low general level of interest rates continued to contribute positively to net demand for consumer credit and other lending to households.

With regard to the impact of banks’ non-performing loans (NPLs) on their lending policies, euro area banks reported that NPLs contributed to a tightening in their credit standards and terms and conditions across all categories of loans over the past six months. However, this tightening impact has generally diminished relative to the impact between 2014 and 2017, and it is expected to decrease further in the next six months. Banks’ NPL ratios affected their lending policies mainly through their impact on risk perceptions, risk tolerance and the cost of cleaning up the balance sheet.

Finally, with regard to the factors that are significant in determining banks’ lending margins, competition and profitability targets were reported as the most significant factors across all categories of loans over the past six months, and these factors also increased most in significance between the beginning of 2014 and the end of 2017.

The BLS, which is conducted four times a year, was developed by the Eurosystem to improve the understanding of banks’ lending behaviour in the euro area. The results reported in the July 2018 survey relate to changes in the second quarter of 2018 and expectations of changes in the third quarter of 2018, unless otherwise indicated. The July 2018 BLS was conducted between 18 June and 3 July 2018. In this BLS round, the sample size of the survey was 149 banks. The response rate was 100%.

Euro Area Bank Lending Survey (HTML)

Lug 262018

The Governing Council of the ECB met on July 26th to update decisions concerning monetary policy across the monetary union.The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.

The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Regarding non-standard monetary policy measures, the Governing Council will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of September 2018.

The Governing Council anticipates that, after September 2018, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and that net purchases will then end.

The Governing Council intends to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

Lug 262018

The International Organization of Securities Commissions (IOSCO) is preparing to launch its second annual World Investor Week (WIW) from 1 through 7 October 2018, following the success of last year ́s event in promoting investor education and protection and highlighting the various initiatives of securities regulators in those two areas around the globe.

The 2018 WIW involves a week of activities carried out by participating IOSCO member jurisdictions. A key objective of the WIW is to highlight the importance of investor education and protection, and to foster learning opportunities for investors, given today ́s rapidly changing environment of online and technological innovations. Many members leverage the event to organize further investor education activities throughout the year.

In last year’s WIW, IOSCO members and stakeholders from some 80 jurisdictions on six continents engaged in a range of activities, offering investor-focused information and services, staging contests to increase awareness of the importance of investor education, organizing workshops and conferences, and conducting local/national campaigns in their jurisdictions. The WIW 2017 Public Report provides an overview of these activities that took place worldwide.

Ashley Alder, Chair of the IOSCO Board and the Chief Executive Officer of the Hong Kong Securities and Futures Commission, said, “The IOSCO World Investor Week not only effectively communicates key messages to market participants regarding investor education, investor protection and financial literacy but also encourages and facilitates new initiatives among our members.”

Lug 262018

The European Banking Authority (EBA) published today a new updated list of Common Equity Tier 1 (CET1) instruments of EU institutions. This list is accompanied by an updated CET1 Report, which includes information on the underlying objectives of the monitoring as well as on the consequences of including or excluding instruments in or from the CET1 list.

The EBA’s monitoring of capital instruments contributes to the enhancement of the quality of institutions’ capital across the EU. The EBA will continue to update the Report on a regular basis to give account of new developments in CET1 issuances and practices.

Since the first publication of the list on 28 May 2014, the EBA has included 13 new forms of instruments issued after the entry into force of the Capital Requirements Regulation (CRR) and assessed their terms and conditions against the regulatory provisions with the aim of identifying any discrepancy with the eligibility criteria. In cooperation with competent authorities, the EBA is also conducting a review of some pre-CRR instruments.

In several cases, the EBA requested amendments to the terms and conditions of the instruments, mainly relating to the eligibility criteria flexibility of payments and permanence.

The CET1 Report includes some background information on the monitoring work done to establish the CET1 list. Its aim is to provide external stakeholders with further guidance on the content and objectives of the CET1 list. The main results of the monitoring and assessment of CET1 instruments are summarised in a ‘lessons learnt’ section. This section highlights areas where the EBA believed it was necessary to amend the terms and conditions of the instruments or the national laws of a given jurisdiction or the by-laws/statutes of institutions to make a given form of instrument eligible as CET1 capital.


EBA report on the monitoring of CET1 instruments — first update (PDF)

EBA updated CET1 list-Q3 2018 (XLSX)

Lug 202018

The European Securities and Markets Authority (ESMA) has published supplementary guidance on the application of the endorsement regime for non-EU credit ratings under the Credit Rating Agencies Regulation (CRAR). In order to ensure that third-country credit ratings, which are endorsed for use by EU investors, meet requirements which are at least as stringent as those set out in CRAR, ESMA adds a new section to its Guidelines on Endorsement first published in November 2017.

In 2017, ESMA clarified that there are two ways for an EU CRA to ensure that an endorsed credit rating issued by a third-country CRA meets the as stringent as test. The EU CRA has verified, and is able to demonstrate that, either:

  • the conduct of the third-country CRA fulfills the relevant endorsement provisions of the CRAR; or
  • the third-country CRA has established and adheres to alternative internal requirements, which are at least as stringent as the relevant endorsement provisions of the CRAR.

The new section aims to assist EU CRAs in assessing whether a third-country CRA’s internal requirements meet the as stringent as test. This is done by setting out the general principles underpinning the as stringent as test and providing a non-exhaustive list of alternative internal requirements which ESMA considers to pass the test. The identified alternative requirements relate to:

  • fees charged by CRAs;
  • analyst rotation;
  • pre-publication of issuer notification;
  • certain rating disclosures (transparency report, initial reviews, and preliminary ratings); and
  • the treatment of inside information.

These supplementary guidelines will ensure an effective application of the 2013 amendments to CRAR (CRA3)  for endorsed credit ratings and a high level of protection of European investors who use endorsed credit ratings for regulatory purposes.

The Guidelines will enter into force on 1 January 2019.


Guidelines on the application of the endorsement regime of the Credit Rating Agencies Regulation (PDF)

Lug 202018

The Financial Stability Board (FSB) today published a report delivered to the G20 Finance Ministers and Central Bank Governors on the work of the FSB and standard-setting bodies on crypto-assets.

For its part, the FSB has developed a framework, in collaboration with Committee on Payments and Market Infrastructures (CPMI), to monitor the financial stability implications of developments in crypto-asset markets. The report published today sets out the metrics that the FSB will use to monitor crypto-asset markets as part of its ongoing assessment of vulnerabilities in the financial system.

While the FSB believes that crypto-assets do not pose a material risk to global financial stability at this time, it recognises the need for vigilant monitoring in light of the speed of market developments. The monitoring framework focuses on the transmission channels from crypto-asset markets that may give rise to financial stability risks. Monitoring the size and growth of crypto-asset markets is critical to understanding the potential size of wealth effects, should valuations fall. The use of leverage, and financial institution exposures to crypto-asset markets are important metrics of transmission of crypto-asset risks to the broader financial system. The framework also includes metrics on trading volumes, pricing, clearing and margining for crypto-asset derivatives. Metrics on exposures will become part of the framework to the extent that they become available.

FSB Chair Mark Carney in his letter to G20 Finance Ministers and Central Bank Governors in March noted that crypto-assets raise a host of issues around consumer and investor protection, as well as their use to shield illicit activity and for money laundering and terrorist financing. At the same time, the technologies underlying them have the potential to improve the efficiency and inclusiveness of both the financial system and the economy.

Against this backdrop, the report published also describes the substantial work standard-setting bodies are undertaking in the areas of their respective mandates:

  • CPMI has conducted significant work on applications of distributed ledger technology, and is conducting outreach, monitoring, and analysis of payment innovations.
  • The International Organization of Securities Commissions (IOSCO) has established an initial coin offering (ICO) Consultation Network to discuss experiences and concerns regarding ICOs, and is developing a Support Framework to assist members in considering how to address domestic and cross-border issues stemming from ICOs that could impact investor protection. IOSCO is also discussing other issues around crypto-assets, including, for example, regulatory issues around crypto-assets platforms.
  • The Basel Committee on Banking Supervision (BCBS) is assessing the materiality of banks’ direct and indirect exposures to crypto-assets, clarifying the prudential treatment of such exposures, and monitoring developments related to crypto-assets for banks and supervisors.

The Financial Action Task Force (FATF) will report separately to the G20 on its work concerning the money laundering and terrorist financing risks relating to crypto-assets.


Crypto-asset: Report to the G20 on work by the FSB and standard-setting bodies (PDF)