Financial Service Regulation and Compliance - Banking February 2019

DOMESTIC

€647 million paid to affected customers – CBI Tracker Mortgage Examination

The CBI has published the penultimate update on the Tracker Mortgage Examination, showing that, at the end of 2018, lenders had paid out €647 million to customers affected by their failings. This is an increase of €67 million since end-August 2018. The update also showed that an additional 1,400 affected customers have been included by lenders for redress and compensation since end-August. This brings the total number of affected accounts at the end of 2018 to 39,800. 97% of affected customer accounts already identified and verified have now received offers of redress and compensation.

Why culture matters: Insights from the CBI Review of Behaviour and Culture in the Irish Banking Sector - Director General, Financial Conduct Derville Rowland

Speaking at the European Banking Institute Global Annual Conference on Banking Regulation, Frankfurt, Ms Rowland discussed how the last decade has uncovered a wide range of financial misconduct scandals around the world. She noted that, in Ireland, we had the Tracker Mortgage scandal which involved lenders denying customers a tracker mortgage or putting them on the wrong rate.  She explained how, the Tracker Mortgage issue also prompted the CBI to consider whether they needed additional supervisory tools to help drive firms to combat a mindset that was delivering poor outcomes for consumers. 

EUROPEAN

ECB publishes paper titled "Markets, Banks and Shadow Banks"

The ECB has published a paper discussing markets, banks and shadow banks. The paper analyses the effect of bank capital requirements on the structure and risk of a financial system where markets, regulated banks, and shadow banks coexist. In particular, the paper addresses issues such as:

  • the difference between regulated and shadow banks, and how do they differ from direct market finance
  • the type of borrowers that are funded by them; how does bank capital regulation affect lending through these channels
  • how does the existence of shadow banks affect the effectiveness of this regulation

ECB 2018 stress test analysis shows improved capital basis of significant euro area banks

The ECB has published aggregate results for the 2018 stress test for all participating banks under its supervision. The 87 banks covered in the report include 33 euro area banks that were part of the EU-wide stress test coordinated by the European Banking Authority (EBA). The ECB conducted additional stress tests on 54 institutions which it directly supervises and which were not part of the EBA stress test.

ECB Banking Supervision conducts sensitivity analysis of liquidity risk as its 2019 stress test

The ECB has launched a sensitivity analysis of liquidity risk to assess the ability of the banks it directly supervises to handle idiosyncratic liquidity shocks. The exercise will constitute the supervisory stress test of 2019. The results of the exercise will feed into the ECB’s ongoing supervisory assessments of banks’ liquidity risk management frameworks, including the Supervisory Review and Evaluation Process. 

ECB issues working paper: Money markets, collateral and monetary policy

This paper discusses how interbank money markets are essential to the liquidity management of banks and that they are also important for monetary policy implementation as interbank rates are often central banks' target rates. The paper then explains that Moneymarket trade is subject to a number of frictions, which displayed themselves forcefully during the Global Financial Crisis.

Banking Union: EU ambassadors endorse full package of risk reduction measures

EU ambassadors have this month endorsed an agreement reached between the Romanian presidency and the Parliament on a set of revised rules aimed at reducing risks in the EU banking sector. It is hoped that the EU will soon have in place a more robust framework to regulate and supervise banks. Eugen Teodorovici, Minister of Finance of Romania said: "The risk reduction measures agreed today will ensure that the banking sector holds enough capital to lend safely to consumers and businesses. At the same time, taxpayers are shielded from any difficulties which banks might be facing."

Speech by Ignazio Angeloni: Challenges for banks in the near-to medium-term

In his speech at the Dolomite Winter Finance Conference, Ignazio Angeloni, Member of the Supervisory Board of the ECB, briefly elaborated on the challenges which banks are likely to encounter in the near future. In doing so, Mr Angeloni distinguished between the challenges brought about by the prevailing macroeconomic environment and those that stem from the legal and regulatory framework underpinning banking activity as well as banking supervision.

Interview with Peter Praet, Member of the Board of the ECB, conducted Detlef Fechtner and Mark Schrörs on 11 February 2019

In this interview, Mr Praet discussed the current state of the euro area economy and that lately they have seen a marked increase in the risks posed. He explained that these risks are why the ECB have revised its assessment at the last meeting of the ECB's governing Council in January.  Mr Praet discussed how the ECB currently see the balance of risks as tilted to the downside and that this represents a significant change in the ECB's communication and reflects concerns about the general economic situation. At the same time, however, he said that the baseline scenario has so far remained intact and that in March following new macroeconomic projections from ECB staff, they will re-examine their assessment.

For further information please contact a member of the Financial Regulation team.

Date published: 8 March 2019