Address by Advisor to the Governor of the Central Bank of Ireland, Lars Frisell, to the Financial Safety Net Conference in Stockholm
Lars Frisell, advisor to the Governor of the Central Bank of Ireland, gave an address entitled 'Resolution of the Irish banking crisis: Hard-earned lessons for Europe' to the Financial Safety Net Conference in Sweden. His speech focused on the blanket guarantee provided by the Irish Government in September 2008 and the fall-out from that decision. He highlighted that, while the Irish economy grew by 5% in 2014, on average one in every 7 mortgages over primary dwellings is in arrears. He stated that, although the introduction of the Bank Recovery and Resolution Directive in January 2015 came too late for Ireland, lessons must be taken from the Irish example and the Directive must be adhered to by Europe.
Irish Government Strengthens Framework to Support Mortgage Holders in Arrears
The Department of Justice and Equality has announced that the Government is to introduce legislation before the summer recess giving Courts the power to review and, where appropriate, approve insolvency deals that have been rejected by banks. This process will represent a reform of the Personal Insolvency framework and "seeks to ensure that fair and sustainable deals are upheld for struggling borrowers willing to work their way out of difficulties with a view to keeping their family home."
EU & INTERNATIONAL
EBA Guidelines on the new Deposit Guarantee Schemes Directive
The EBA published two sets of Guidelines on contributions and payment commitments under the new Deposit Guarantee Schemes Directive (Directive 2014/49/EU). The Guidelines, on the basis of risk-based contributions, set out the methods for calculating ex-ante contributions to Deposit Guarantee Schemes that are adjusted to the risk profile of each credit institution, having regard to, inter alia, the credit institution's capital, liquidity, asset quality, business model and asset encumbrance; with these obligatory indicators forming 75% of the risk assessment, with the remaining 25% allowing for flexibility. The Guidelines make further provision for Deposit Guarantee Schemes to authorise credit institutions to contribute up to 30% of the required contributions in the form of secured commitments to pay upon request, and provide criteria on the eligibility and management of collateral.
Joint Committee of the three European Supervisory Authorities (ESAs) publishes its fifth "Report on Risks and Vulnerabilities in the EU Financial System"
The report by the ESAs states that while no new risks to EU financial market stability have emerged, the risks already present have intensified. The report divided key risk factors into macro risks to the EU financial system and economy and operational risks. The report identified key macro risks as relating to: (i) low economic growth and low inflation environment; (ii) low profitability which is encouraging financial institutions and investors to search for yield which requires increased supervision on the viability of business models, related restructuring activity and adequate risk management; and (iii) continued doubts on the comparability and consistency of banks’ calculations of risk weighted assets. Key operational risks were identified as business conduct risk and IT operations and cyber risks. With regard to business conduct risk, the report recommends that supervisors should include misconduct costs in future stress tests where appropriate, financial institutions should strengthening product oversight and governance frameworks and improvements are warranted in regulatory framework and supervisory practices.
European Banking Authority (EBA) outlines its upcoming initiatives for the regulation of retail payments
The EBA announced that it is getting ready to develop requirements aimed at harmonising regulatory and supervisory practices to ensure efficient and secure payment services across the EU. It will do this by fulfilling mandates for the revised Payments Services Directive and the Interchange Fee Regulation. The EBA has also issued final guidelines for the security of internet payments.
European Banking Authority (EBA) issues guidance on the implementation of resolution tools
The purpose of the three sets of guidelines is to facilitate the implementation of resolution tools in the banking sector across the EU and to give guidance to EU Resolution Authorities on the circumstances which should be assessed when taking resolution decisions. The guidelines will apply from 1 August 2015 and aim to ensure an efficient and consistent implementation of resolution tools across the EU.
Working group for Committee on the Global Financial System and Markets Committee publish report on regulatory change and monetary policy
The working group looked at how changes in the regulatory environment are likely to have an impact on the implementation of monetary policy by central banks. It assessed the impact of key new regulations on monetary policy and found that their likely impact on financial institutions and markets should be limited and manageable, and that, as a result, central banks should be able to make adjustments within their existing policy frameworks.