Author: Selwyn Manning

Source: Government of the Netherlands

News item | 15-04-2024 | 14:31

Ms Schreinemacher: ‘I’ve had four wonderful months of maternity leave, and it is with great pleasure that I return to my position as minister today. I would like to thank Geoffrey van Leeuwen for taking over my duties in my absence, especially during these turbulent times. It was a relief to know that everything was in his expert hands while I was away.’

Source: Government of the Netherlands

News item | 14-04-2024 | 15:19

Anyone with an appointment has been notified or will be notified as soon as possible and appointments will be rescheduled. This will mainly affect people wishing to apply for a visa for travel to the Netherlands. At present, the temporary closure is not affecting the services of VFS Global in Tehran and Erbil. Any updates can be found at www.vfsglobal.com.

The diplomatic missions in Tehran and Erbil will continue to carry out their other tasks as far as possible, with staff safety as their highest priority. The ministry does not comment on security-related measures. If you urgently need help from the embassy or the consulate-general, please call +31 247 247 247.

Source: Government of the Netherlands

News item | 13-04-2024 | 10:04

Anyone with an appointment has been or will be notified in good time and appointments will be rescheduled. This will mainly affect people who wish to apply for a visa to travel to the Netherlands. At present, the temporary closure is not affecting the services of VFS Global in Tehran and Erbil. Any updates can be found at www.vfsglobal.com.

As the missions in Tehran and Erbil continue to carry out their other work, the safety of the staff is the highest priority. For obvious reasons the ministry does not comment on security measures. If you urgently need help from the embassy or the consulate-general, please call +31 247 247 247.

All Dutch diplomatic missions in the region are closed to the public on Saturdays. The missions in Tehran and Erbil would normally be open to the public on Sunday, which is the first day of the working week in countries in the region.

Source: European Banking Authority

The European Banking Authority (EBA) today published its 2023 Reports on the annual market and credit risk benchmarking exercises. These exercises aim at monitoring the consistency of risk weighted assets (RWAs) across all EU institutions authorised to use internal approaches for the calculation of capital requirements. Regarding market risk, for the majority of participating banks, the results confirm a relatively low dispersion in the initial market valuation (IMVs) of most of the instruments, and a decrease in the dispersion in the value at risk (VaR) submissions compared to the previous exercise. For credit risk, the variability of RWAs remained stable compared with the previous year, but for some asset classes a reduction could be observed in a longer perspective. 

Market Risk exercise            

The Report presents the results of the 2023 supervisory benchmarking and summarises the conclusions drawn from a hypothetical portfolio exercise (HPE) conducted in 2022/23. 

The results confirm that most participating banks have seen a relatively low dispersion in the initial market valuation (IMVs) of most of the instruments, and a decrease in the dispersion in the value at risk (VaR) submissions compared to the previous exercise. 

From a risk factor perspective, FX portfolios exhibit a lower level of dispersion than the other asset classes. In general, variability is substantially lower than in the previous exercise. This is likely due to an improvement in the data submission, which impacted the dispersion of the risk measures, decreasing the dispersion in general.

Regarding the single risk measures, across all asset classes except for CO, the overall variability for value at risk (VaR) is lower than the observed variability for stressed VaR (sVaR) (16% and 21%, compared to 21% and 28% in the 2022 exercise, with 27% and 31% in 2021 and with 18% and 29% in 2020). More complex measures, such as the incremental risk charge (IRC), show a higher level of dispersion (42%, compared to 45% in the 2022 exercise, with 43% in 2021 and 49% in 2020).

Competent authorities also complemented a questionnaire on banks participating in the exercise to supplement the quantitative analysis. The majority of the significant dispersions have been examined and justified by the banks and Competent Authorities. A small minority of the outlier observations remain unexplained and are expected to be part of the ongoing activities of supervisors, who are expected to monitor and investigate the situation.

Credit Risk exercise

The report shows that the relative share of the Exposure at Default (EAD) subject to the Internal Ratings Based (IRB) method appears practically constant in the last years.

Furthermore, the share of approved material model changes has increased for all asset classes, indicating that the implementation of the IRB roadmap (set out by the EBA in February 2016) is progressing.

The report goes on to show the evolution of the variability of the risk parameters over the period 2015-2023. A clear decreasing trend of variability can be observed in the Corporates class, whereas for the other asset classes the variability seems more stable. The report provides evidence that, besides risk factors able to capture the underlying portfolio characteristics, prudential adjustments could potentially explain part of the variability.

A specific analysis regarding the portfolio Retail shows the role that the type and degree of collateralisation can play in explaining the variability of the Loss Given Default (LGD).  

Notes to the editors 

These annual benchmarking exercises contribute to improving the regulatory framework, increasing convergence of supervisory practices and, thus, restoring confidence in internal models. For credit risk internal models, the EBA has followed its roadmap for the implementation of the regulatory review of internal models.

This exercise should be read in parallel with other efforts to reduce undue level of variability. In particular, the  EBA roadmap to Repair IRB models is a key component of the review of the IRB framework, along with the enhancements brought by the final Basel III framework assessed by the EBA in a set of recommendations as an answer to the call for advice of the European Commission.

The exercises provide a regular supervisory tool based on benchmarks to support competent authorities’ assessments of internal models and produce comparisons with EU peers.
 

Source: European Banking Authority

The European Banking Authority (EBA) published today its final Guidelines on the application of the group capital test for investment firm groups. These Guidelines set harmonised criteria to address the observed diversity in the application of the group capital test across the EU and help ensure a level playing field.

The Guidelines identify criteria to assist Competent Authorities in their assessment of the simplicity of the group structure and the significance of the risk posed to clients and the market, and envisage a simplified assessment of the criteria for groups that include only small and non-interconnected investment firms.

The Guidelines include both quantitative and qualitative criteria. In particular, on the quantitative side, the Guidelines detail, among others, the number of undertakings and of levels within a group, while on the qualitative side, they clarify that simple capital ties and a clear ownership structure should be in place. The Guidelines also provide a methodology to guide Competent Authorities in the assessment of the adequacy of own funds requirement of third country undertakings of EU groups.   

Legal basis and background

The EBA has developed the final Guidelines on its own initiative, in accordance with Article 16 of its founding Regulation, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.

The group capital test is set out in Article 8 of Regulation (EU) 2019/2033. The criteria for granting its use are set out in paragraph 8(1) and 8(4) of that Regulation. 

Source: European Banking Authority

The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) today announced that they will launch in May  the voluntary exercise for the collection of the registers of information of contractual arrangements on the use of ICT third-party service providers by the financial entities. Under the Digital Operation Resilience Act (DORA) and starting from 2025, financial entities will have to maintain registers of information regarding their use of ICT third-party providers. In this dry run exercise, this information will be collected from financial entities through their competent authorities and will serve as preparation for the implementation and reporting of registers of information under DORA.

The ESAs and the competent authorities are introducing this voluntary exercise to help financial entities prepare for establishing their register of information,  gathering the relevant information specified in the ESAs’ final draft Implementing Standards on the registers of information and reporting their registers of information to their respective competent authorities, who will, in turn, provide those to the ESAs.

Financial entities participating in the dry run will receive support from the ESAs to: (1) build their register of information in the format as close as possible to the steady-state reporting from 2025, (2) test the reporting process, (3) address data quality issues, and (4) improve internal processes and quality of their registers of information.

As part of the exercise, the ESAs will provide feedback on data quality to financial entities participating, return cleaned files with their register of information, organise workshops and respond to frequently asked questions.

Next steps

The ad-hoc data collection is expected to be launched in May 2024 with the financial entities expecting to submit their registers of information to the ESAs through their competent authorities between 1 July and 30 August.

Workshop

To provide more information regarding the dry run exercise, the ESAs invite financial entities to take part in an introductory workshop on 30 April 2024 from 10:00 to 12:00.

The workshop will be held virtually, and interested parties are invited to register by 25 April 2024 using the following link. A dedicated factsheet is also available for more information.

Source: European Banking Authority

The European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) today published three vacancy notices in the context of the Digital Operational Resilience Act (DORA).

This announcement comes as part of the establishment of a fully integrated team within the 3 ESAs (“joint oversight team”) to carry out the oversight of critical third-party providers (CTPPs) required by DORA. The team will include a Director, Legal Experts and ICT Risk Experts.

Recruitment

The joint oversight team will be led by 30 staff across the ESAs and will be complemented by experts from competent authorities.

Apply by 13 May to the first positions advertised today:

Process

The DORA framework introduces an oversight framework for critical ICT third party service providers.

In practice, one of the three European Supervisory Authorities will act as a Lead Overseer and will coordinate the oversight work. Its role encompasses requesting information from CTPPs, conducting off-site investigations and onsite inspections, imposing penalties and issuing recommendations.

Background

The Digital Operational Resilience Act (Regulation 2023/2554, or “DORA”) applicable from January 2025 establishes a comprehensive framework for fostering the digital operational resilience of all EU financial entities. It foresees that ICT third-party service providers who provide ICT services to financial entities and are identified as critical (critical third-party providers – CTPPs) will be subject to an oversight at the EU level.

Source: European Banking Authority

The European Banking Authority (EBA) today published its final Guidelines on the resubmission of historical data under the EBA reporting framework. The Guidelines provide a common approach to the resubmission of historical data by the financial institutions to the competent and resolution authorities in case of errors, inaccuracies or other changes in the data reported, in accordance with the supervisory and resolution reporting framework developed by the EBA.

The Guidelines, issued following the recommendation included in EBA Report on the cost of compliance with supervisory reporting requirements, and built on the proportionality principle of the underlying reporting requirements, set out a general approach for the resubmission of historical data with the aim of limiting the number of historical periods subject to resubmission, due to errors or inaccuracies.

Under this general approach, financial institutions are expected to resubmit the corrected data for the current reporting date, and historical data for past reference dates, going back at least one calendar year (except for the data with monthly reporting frequency). The Guidelines also clarify the general circumstances under which the resubmission may not be required.

The resubmission of historical data is equally relevant for all types of financial institutions to ensure consistency of data and to allow user at competent authorities, resolution authorities and the EBA to use high quality, consistent and complete data.

Following the feedback received during the public consultation from May to July 2023, the EBA further clarified various provisions in the Guidelines, and adjusted the precision requirement in the EBA filing rules for monetary data from one thousand to ten thousand, which should reduce the number of resubmissions. The new precision requirement will be applicable as of 1 April 2025.

Background

The Guidelines are the EBA’s response to one of the recommendations in the EBA Report on the cost of compliance with supervisory reporting requirements (recommendation 25).

These Guidelines aim at assisting institutions in their reporting obligations (based on various reporting acts to which they are subject to) and are not intended to change the reporting rules.

Source: Government of the Netherlands

Source: European Banking Authority

The European Banking Authority (EBA) today published its Q4 2023 quarterly Risk Dashboard (RDB), which discloses aggregated statistical information for the largest EU/EEA institutions. EU/EEA’s banks capitalisation stands at record levels, liquidity has improved, while return on equity (RoE) stood at 10.3%. Yet, early signs of credit quality deterioration have become more apparent. The publication also includes information on minimum requirements for own funds and eligible liabilities (MREL).

• EU/EEA banks reached record high capitalisation levels, with the weighted average common equity tier 1 (CET1) ratio (fully loaded) at 15.9%, 50 bps higher than in December 2022.   
• The liquidity coverage ratio (LCR) increased after several quarters of decline. The net stable funding ratio (NSFR) also slightly increased during the last quarter but remains close to levels reported during the last several quarters. The LCR and NSFR stand comfortably at 167% and 127%, respectively. Financial market conditions during the first months of 2024 were benign with high level of debt issuances from banks.
• Loan and asset growth remained subdued, still affected by banks’ tightening of lending standards and lower demand. Risk weighted assets (RWAs) have increased slightly, driving RWA density higher mainly due to increased operational risk (from 9.6% to 10.1% of total RWA).
• While asset quality remains robust, the non-performing loans (NPL) ratio increased slightly from 1.8% to 1.9%. Stage 2 loans and average cost of risk also increased during the last quarter of the year. NPLs collateralised by commercial real estate (CRE) increased marginally and the NPL ratio of these exposures was 4.3%.
• EU/EEA banks’ exposure to sovereigns increased slightly in 2023, after its decline in previous years.
• Profitability for 2023 remained high at 10.3%, albeit with wide dispersion.  While all banks have benefited from rising interest rates, the share of banks with a RoE higher than 10% has decreased from 60% to 45%.

Note to editors

Key indicators have been visualised in a dynamic way. To facilitate the navigation, here is the full list of key indicators that you can find in the graphs:

• Slide 1: Capital position of EU/EEA banks remains strong [DOWNLOAD DATA]
• Slide 2: EU/EEA banks liquidity situation further improved [DOWNLOAD DATA]
• Slide 3: Assets and loans remained stable, while RWAs increased slightly [DOWNLOAD DATA]
• Slide 4: EU/EEA banks’ exposures to sovereigns increased [DOWNLOAD DATA]
• Slide 5: Credit quality indicators are good, but show signs of potential deterioration [DOWNLOAD DATA]
• Slide 6: Exposure of EU/EEA banks to NPLs collateralised by commercial real estate (CRE) increased [DOWNLOAD DATA]
• Slide 7: Profitability gains have benefited all banks, although convergence is slowing  [DOWNLOAD DATA]

The figures included in the Risk Dashboard are based on a sample of 164 banks, covering more than 80% of the EU/EEA banking sector (by total assets), at the highest level of consolidation, while country aggregates also include large subsidiaries (the list of banks can be found here).