ecb review 2020

Box 7The performance and resilience of green finance instruments: ESG funds and green bonds, Prepared by Marco Belloni, Margherita Giuzio, Simon Kördel, Petya Radulova, Dilyara Salakhova and Florian Wicknig[47]. Sources: ECB and ECB calculations.Notes: Right panel: the colours of the dots reflect the level of RRE risks: blue = no exposure; yellow = low exposure; red = medium exposure; brown = pronounced exposure. Specifically, communication by prudential authorities on the time horizon for the replenishment of buffers is important to shape bank and investor expectations in a business environment characterised by compressed profitability, limited capital-generation capacity and a high cost of bank equity capital. In the early 2010s, banks in a number of euro area countries held high shares of their government’s debt at the same time that governments were providing guarantees or other support to their banking systems. However, following a return of inflows in recent months, euro area investment funds have increased their longer-duration and lower-rated non-financial corporate (NFC) debt exposures, increasing the likelihood of outflows and losses if corporate credit risk rises materially. The widening in NAV spreads, which was the largest on record for these instruments, might have indicated that corporate bonds became even more illiquid than suggested by the CDS basis to the extent that bond prices temporarily became immeasurable. The timing and strength of the recovery are uncertain too, with a risk of both “false starts” in exiting from containment measures and persistent economic effects. “Corp. Lending for house purchase in the euro area was supported by further improvements in labour markets, broadly resilient consumer confidence, and favourable financing conditions reflected in lower interest rates and supportive credit standards (see Chart 1.8, left panel). [15] The average euro area significant institution would deplete its management buffer when such losses reach over 13% of the total bank loan exposures to these sectors. The model does not include the impact of policy support measures. Indeed, market intelligence points to a large drop in transactions already in March 2020. Conversely, if certain companies fail to recover, it could signal longer-term risks, whereby they become increasingly reliant on an accommodative policy environment while exhibiting anaemic growth. Sources: Refinitiv and ECB calculations.Notes: Emission intensity is measured in tons of CO2 equivalent emissions produced per million euro of sales. Oct 8, 2020 Hélène Rey Now that the European Union has committed to achieving net-zero carbon emissions by 2050, the European Central Bank must start preparing for the structural shifts that lie ahead. The economic impact of the pandemic has been highly uneven. However, the large exposure of governments to a weaker corporate sector through contingent liabilities and the bleak outlook for the macroeconomy increase the risks to sovereign debt sustainability over the medium term. In response, many firms drew on credit lines (see Chart 1.13, left panel) and loan provision in March increased by around €120 billion to the highest monthly level on record. However, spreads are still above pre-pandemic levels (see Chart 3.14, left panel). 20, Issue 5, May 2020, pp. Instead, keeping the portfolio income at its 2019 level would require insurers to increase the share of high-yield assets from 2% of their debt securities portfolio to 30% by 2025. Right panel: the size of the bubbles reflects the growth in overvaluation since the first quarter of 2019. However, there is pronounced heterogeneity across countries, with significant institutions (SIs) in Germany and France having a somewhat higher relative reliance on wholesale funding compared with banks in Italy and Spain. BNP Paribas has received the notification by the European Central Bank of the outcome of the 2020 Supervisory Review and Evaluation Process (SREP), which states that capital requirements on a consolidated basis from last year remains in force for the Group. See what has changed in our privacy policy, The coronavirus pandemic prompted extreme financial market sell-offs and stress, Corporates and households face lower income and rising debt burdens, Fiscal measures provide essential support, but add to public debt burdens, Euro area banks are supported by capital and liquidity buffers, but face even weaker profitability, Policy measures alleviate near-term risks to financial stability, but medium-term vulnerabilities have risen, Sharp deterioration of near-term economic outlook, Substantial fiscal response to pandemic implies a large increase in sovereign debt, Income declines and rising unemployment will test resilience of household balance sheets, Widespread cash-flow challenges put the corporate sector under stress, Coronavirus spread sparks extreme market volatility, Central banks acted to restore liquidity in core market segments, Markets governed by increasing macro and credit risk, Lower valuations and tighter market funding conditions, Asset quality set to decline in the wake of the pandemic, but capital buffers have increased during the past decade, Banks’ ability to support the recovery might be hampered by weak profitability, Forced asset sales by non-banks amplified market dynamics, Large outflows from investment funds tested the sector’s resilience, Euro area insurers face a double hit from the fall in asset prices and low interest rates amid potential liquidity risks, Authorities acted to help banks draw on capital buffers and continue lending, Using flexibility in the bank regulatory framework, Mitigating risks from the non-bank financial sector, Trends in residential real estate lending standards and implications for financial stability, Derivatives-related liquidity risk facing investment funds, Financial stability and macroprudential policy, Euro area economic and financial developments by institutional sector, Euro area insurance corporation statistics, Euro area financial vehicle corporation 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Household finance and consumption survey (HFCS), Survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (SESFOD), Emergency liquidity assistance (ELA) and monetary policy, Securities settlement systems and central counterparties, Other infrastructures and service providers, Advisory groups on market infrastructures, Debt Issuance Market Contact Group (DIMCG), European Forum for Innovation in Payments (EFIP), Macroprudential stress test of the euro area banking system, ECB Banking Supervision provides temporary capital and operational relief in reaction to coronavirus, Our response to the coronavirus emergency, The ECB’s commercial paper purchases: A targeted response to the economic disturbances caused by COVID-19, Improving funding conditions for the real economy during the COVID-19 crisis: the ECB’s collateral easing measures, Coordinated central bank action to enhance the provision of global US dollar liquidity, Coordinated central bank action to further enhance the provision of US dollar liquidity, End of an era for irrational complacency in markets, Leverage and margin spirals in fixed income markets during the Covid-19 crisis, Public hearing at the European Parliament’s Economic and Monetary Affairs Committee, ECB asks banks not to pay dividends until at least October 2020, ECB Banking Supervision provides further flexibility to banks in reaction to coronavirus, Counterparty and liquidity risks in exchange-traded funds, Institutions Turn to ETFs for Bond Market Liquidity, Alternative scenarios for the impact of the COVID-19 pandemic on economic activity in the euro area, ESMA recommends action by financial market participants for COVID-19 impact, EIOPA statement on actions to mitigate the impact of Coronavirus/COVID-19 on the EU insurance sector, EIOPA statement on dividends distribution and variable remuneration policies in the context of COVID-19, Consultation Paper on the Opinion on the 2020 review of Solvency II, Enhancing the macroprudential dimension of Solvency II, Implications of Brexit for the EU financial landscape, ECB contribution to the European Commission’s consultation on Capital Markets Union mid-term review 2017, I understand and I accept the use of cookies, See what has changed in our privacy policy. New issue premia for investment-grade bonds have come down overall since the spring, but continue to vary widely. Under the adverse scenario, lending volumes are expected to contract in both 2021 and 2022 (see Chart 3.19). This led to borrowers increasingly requesting loan condition relief, which points to a deterioration in credit quality (see Chart 2.9, right panel). Key Points. For example, non-financial corporations’ equity valuations in some regions entered the episode at elevated levels in cyclically adjusted terms, implying that prices fell from a higher cliff (see Chart 2.9, left panel). Although corporate cash buffers on aggregate mitigate the elevated debt levels, the most affected firms may face severe refinancing constraints. The banking union remains unfinished, however, and efforts are required to improve its crisis management framework, establish its missing third pillar, the European deposit insurance scheme, and facilitate the flow of capital and liquidity within banking groups, while guaranteeing adequate safeguards for host Member States. Consumer lending declined and bank lending standards tightened. Having benefited from flight to liquidity in the early phase of the turmoil, even money market funds and funds investing in sovereign bonds saw large outflows in mid-March as demand for cash rose (see Chart 3, right panel). See Economic Bulletin, Issue 4, ECB, 2018, for more details. At the same time, parts of the sector exhibit vulnerabilities associated with liquidity risk, credit risk and interest rate risk, some of which were exposed during the market turmoil in March. Sources: Bloomberg Finance L.P., ECB supervisory data, Oxford COVID-19 Government Response Tracker, ECB and ECB calculations.Notes: Left panel: figures are on a trailing four-quarter basis. The ECB’s announcements of significant and swift sovereign bond purchases under the public sector purchase programme (PSPP) and the PEPP helped to reverse the widening of sovereign spreads over the short term. About 30% of the funds’ bond portfolio currently yields 2% or more (see Chart 4.5, right panel), which compares with 10% of the outstanding amounts with a similar yield (see Chart 3, left panel, of the Overview). This risk is exacerbated by the already high leverage of many corporates, households and sovereigns following the first wave of the pandemic (see the remainder of Chapter 1). Cash buffers alleviate short-term debt service needs, while the EU recovery package supports in particular countries most affected by the crisis and with high bond yields. These measures will be in place until the recovery is well established. In addition, a range of measures make it easier for euro area banks to use capital buffers to absorb losses and avoid deleveraging. Firms drew heavily on their revolving credit facilities to access liquidity at the start of the coronavirus crisis and, in many cases, these drawdowns triggered springing covenants. Right panel: ECB supervisory data and ECB calculations. [8], Sovereign bond market fragmentation pressures have eased and asset price inflation has resumed. Overall, at the end of 2019, management buffers above current minimum capital requirements appear to provide banks with a good starting point for absorbing potential future losses related to the repercussions from the coronavirus (see Chart 3.10, right panel). Alternative valuation measures can point to lower/higher estimates of overvaluation. Without the massive monetary and fiscal support measures, many more viable firms could have been forced into failure by the impact of the pandemic, adding to pressures on the economy and banks. The extreme levels of market stress eased in late March when central banks and fiscal authorities across the world took extraordinary measures. While the large fiscal policy response mitigates the economic cost of the downturn, thereby providing a first line of defence against fiscal debt sustainability concerns, a more severe and protracted economic downturn could give rise to debt sustainability risks in the medium term. Combined buffers include all capital in excess of Pillar 1 and Pillar 2 requirements. As a result, insurers may also continue to invest larger shares of their portfolios in alternative asset classes. Stress in funds could also affect short-term funding markets, if funds need to raise cash to meet outflows or margin calls. Funds’ liquidity needs vary across investment strategies. Insurers traditionally hold significant shares of their portfolios in sovereign debt, amounting to up to 70% of their total debt securities portfolios in some countries (see Chart 4.8, right panel). Dig deeper into the ECB’s activities and discover key topics in simple words and through multimedia. Equity market performance has been broadly in line with forward-looking indicators, but the risk of an abrupt equity market correction remains elevated, albeit diminishing. [4], Eurosystem provided liquidity in securities and US dollar markets, Box 2 Volatility-targeting strategies and the market sell-off, Prepared by Danilo Vassallo, Lieven Hermans and Thomas Kostka. The recent substantial increase in corporate deposits suggests that non-financial corporations (NFCs) increased their short-term borrowing to prevent liquidity shortages, particularly in France (see Chart 3.4, right panel). Sources: Bloomberg Finance L.P., respective central bank and ECB calculations.Notes: Left panel: the “Other” category refers to the balance sheets of the Bank of England, Swiss National Bank, Bank of Canada, Reserve Bank of Australia, Reserve Bank of New Zealand, Sveriges Riksbank and Norges Bank. The negative bases between the two assets suggest that investment-grade and high-yield bond spreads widened beyond the rise in perceived default risk and risk premia (see Chart 2.4, left panel). The adverse scenario is derived as a tail event reflecting the risk of a protracted pandemic and continued weakness in the global economy (see Box 6). ECB Banking Supervision annualises quarterly/semi-annual data by multiplying it by four/two respectively, resulting in a different headline profitability figure. The enacted prudential measures will provide relief to banks as long as they are needed, and until the economic recovery is well established. This box sets out an illustrative assessment of how the announced schemes are intended to operate, and how they might affect the scale of losses that banks may face in the quarters ahead. 23 January 2020. Review will encompass quantitative formulation of price stability, monetary policy toolkit, economic and monetary analyses and communication practices; Other considerations, such as financial stability, employment and environmental sustainability, will also be part of review Contingent liabilities could increase sovereign debt levels further, if the economic situation deteriorates and loan guarantees are called. Right panel: net speculative positioning refers to the EUR/USD net non-commercial position. Even so, households in a number of euro area countries continue to be burdened by high legacy debt. This may lead structured credit instruments securitising such loans (collateralised loan obligations or CLOs) to suffer from a higher default correlation in their asset pools as the shock hits many borrowers simultaneously. The drop in corporate profits has been especially pronounced in countries that already had high debt levels going into the crisis. income support to citizens) and health system (e.g. Corporate fundamentals are set to weaken in line with deteriorating economic conditions. The red vertical and horizontal lines represent the euro area averages. That said, increased risk-taking by some insurers over recent years had made the sector more vulnerable to the repricing of financial assets. Figures are expressed as a percentage of 2019 GDP. Economic projections for all euro area countries for 2020, which are surrounded by a high degree of uncertainty, suggest substantial declines in output, with annual rates of decline ranging between -6% and -9.2% (see Chart 1.1, left panel). The majority of insurance liabilities relate to life insurance business, which suffered heavily from asset price declines but for which a limited increase in claims is expected. That said, high-yield funds have more illiquid assets in their wider portfolios than other fund types, which means they face greater exposure to redemption risk. Sources: Bloomberg Finance L.P., Refinitiv and ECB calculations.Notes: Left panel: based on national/regional stock price indices. At country level, the estimated CET1 ratio impacts fall in the range of 0.9-3.0 percentage points (see Chart 3.12, right panel). Explanatory variables: lag of house price growth, overvaluation (average of deviation of house price-to-income ratio from long-term average and econometric model), systemic risk indicator, consumer confidence indicator, financial market conditions indicator capturing stock price growth and volatility, government bond spread, slope of yield curve, euro area non-financial corporate bond spread, and an interaction of overvaluation and a financial conditions index. Globally, the low-yield environment continues to encourage investors to shift into riskier assets. Sources: ECB MFI interest rate statistics, ECB supervisory statistics and ECB calculations. Increasing investor interest in green financial products: growth and better resilience of ESG funds and green bonds. Banks continue to rely on remote working arrangements, which could shape the way of working in the near future, with an impact on operational risks. Right panel: 2020 issuance is year to date (up to November 2020). “Remaining envelope” denotes announced envelopes of guarantees that have not been committed yet. At the same time, the choice of instruments should be tailored to the nature of the specific NPL problem. The increase in corporate debt was accompanied by a similarly-sized increase in cash buffers in the corporate sector, implying that net debt remained stable on aggregate (see Chart 1.12, middle panel). These contingent liabilities do not immediately affect official government deficit and debt levels, but can be relevant for debt sustainability as they could result in additional cash outflows if the underlying loans do not perform (see Chart 1.6, left panel). [37] Both measures have roughly doubled over the last decade (see Chart 4.1, left panel), driven mainly by an increase in both overall debt securities issuance and loans granted by other financial institutions (OFIs). Travel insurance claims will be significantly lower due to the reduction in travel. Additional claims from renewed lockdowns are expected to be lower than at the beginning of the pandemic. In recent years, euro area banks have increased dividend payouts and … MFI: monetary financial institution. Non-bank financial intermediaries appear to have increased their risk-taking (see Chart 4, left panel). “Corporate” refers to investment-grade corporates. The first half of 2020 saw a marked decline in euro area banks’ return on equity (ROE), from over 5% in the fourth quarter of 2019 to just above 2% in the second quarter of 2020. The index is based on 17 indicators, ranging from information on containment and closure policies (e.g. Policies such as payment moratoria and State guarantees can help mitigate the increase in credit risk and defaults. [68] Given that other market participants often use them as part of their liquidity management, MMFs should meet high standards regarding the stability of value and the ability to redeem at short notice, even in stressed market conditions. Furthermore, banks most likely to suffer from usability impediments (e.g. Fiscal policies that increase the supply of bonds issued by highly rated European entities relative to that of individual sovereigns will arguably reduce overall sovereign funding costs and, in some jurisdictions, decrease sovereign spreads via reduced fiscal debt levels, other things being equal. Financial stress was compounded by a shock to oil prices as global demand collapsed, the inability of major oil producers to agree upon a production cut, as well as turbulence on US futures markets linked to storage capacity. To do this, we use the anonymous data provided by cookies. Market participants have been slow in making the transition to the euro short-term rate (€STR) as the new reference rate in short-term interest rate derivatives markets. At the same time, the effectiveness of both the loans and the grants from the recovery package hinges on countries deploying these funds for productivity enhancing purposes. The recent events also demonstrate that, beyond the overall level of bank capital, releasable buffers are important to offer policy space in situations of economic distress, as we have seen this year. Global non-life insurance prices have risen sharply over the last three years (see Chart 4.9, left panel). Focusing on investment-grade and high-yield corporate bond ETFs, investment funds are estimated to hold €17 billion, households €9 billion and ICPFs €7 billion. This was done by extending the preferential treatment of such loans guaranteed by export credit agencies to NPLs guaranteed or counter-guaranteed by national governments or other public sector guarantors. While corporates less affected by the pandemic were able to build up cash buffers, those in the worst affected sectors were forced to increase their net debt position and face higher refinancing pressures going forward. The Tier 1 capital ratio[14] of euro area banks on aggregate has almost doubled over the last decade, from 8.8% at the end of 2008 to 15.5% in the third quarter of 2019, which puts banks in a much better position to absorb potential losses resulting from the economic fallout of the coronavirus. Sources: ECB (balance sheet item statistics and supervisory data), Bloomberg Finance L.P., Reuters, Refinitiv and ECB calculations.Notes: Left panel: white bubbles indicate negative values. Exceptionally high spreads between prices for ETFs and prices for their underlying assets (net asset value (NAV) spreads) reflected broader market liquidity issues (see Chapter 2), but may have also reflected frictions in the ETF intermediation chain. The European Central Bank (ECB) will launch an independent review of an incident that affected its real-time gross settlement system TARGET2 on 23 October 2020, causing an outage for almost 10 hours. Finally, the stress test will help to reveal data gaps that need to be filled to enable climate risks to be evaluated more effectively. The aggregate ROE of euro area significant institutions declined in 2019 to less than 5.5% and the weakness in bank profitability intensified, with more than 80% of SIs reporting an ROE below 8%, compared with 75% in the third quarter (see Chart 3.13, left panel). The impact of the coronavirus shock on RRE markets depends on its persistence and its effects on employment and household income. Non-banks suffered large asset valuation losses from the market response to the coronavirus pandemic. Overall, that would allow the average SI to absorb losses of up to 30% of the exposure to the most sensitive sectors (see Chart 3.11, left panel). [19] For a sub-sample of listed banks which disclosed a positive impact from these regulatory changes, the median CET1 ratio uplift amounted to 30 basis points (see Chart 3.11, left panel). It also sets out policy considerations for both the near term and the medium term. The high-yield corporate bond funds, which were the hardest hit during the turmoil, have also seen strong inflows of almost 12% since the start of the PEPP (see Chart 4.3, left panel). Some banks could also face an abrupt increase in funding costs from ratings downgrades which have not yet materialised despite the deteriorated outlook. From this perspective, regular monitoring and enhanced management of insurers’ liquidity risk – as anticipated by EIOPA’s recent draft advice[69] – should be key elements of the current review of Solvency II. Indicators from options markets and positioning data in futures markets indicate that market sentiment has turned in favour of the euro, but moderated more recently (see Chart 2.1, right panel). That said, alongside the asset purchases carried out by the Eurosystem under the pandemic emergency purchase programme (PEPP), the recently launched European initiatives, such as the SURE and the Next Generation EU (NGEU) instruments, should help ensure a more balanced economic recovery across EU countries and avoid the economic and financial fragmentation risks observed during the euro area sovereign debt crisis. of a bank’s bond and the yield of a maturity-matched euro swap. High-yield funds investing in European corporates experienced even larger outflows over this period (i.e. If applied in a stress scenario, they could limit the ability of firms and other financial institutions to raise liquidity and undermine market confidence more broadly. Navigation Path: Home›Research & Publications›Financial Stability›Financial Stability Review›26 May 2020. This is turn led to a freeze in demand and issuance of commercial paper, an important source of short-term funding for financial and non-financial corporates (see Box 7). As net loan flows to corporates abated over the summer, firms continued to replace the short-term funding they took on in March with longer-dated loans. Credit provision by the non-bank financial sector can help diversify sources of corporate funding, and recent risk-taking is, to some extent, a desirable consequence of strong fiscal and monetary policy support (see Section 1.1). All rights reserved. Rating actions thus far indicate that agencies may take a gradual approach to downgrades of euro area corporates, similar to the evolution observed during past crises (see Chart 2.11, left panel). The European leveraged loan market has experienced increased downgrade rates, especially in March and April, and elevated default rates, although the latter remain below historical highs. A gradual rebound in economic conditions in the baseline scenario and a prolonged recession in the adverse scenario, Euro area GDP falls significantly in 2020 and 2021 in the adverse scenario. Maintaining sufficiently high investment income in the current interest rate environment could require insurers to rebalance their portfolios towards higher-yielding, but riskier assets. European level booms in many euro area securities sold/purchased in the high-yield segment are considered this will! Ease regulatory requirements and discourage banks from deleveraging should prevent even worse feedback loops arising the! Even losses going forward as a percentage of 2019 1.11, left panel.. Slowdown and a fall in asset valuation losses for non-banks, especially in countries that already exhibited low growth. Area ( see Chart 6, right panel: net fee and Commission income LLP!, FR, be, PT, it should not signal a wave of corporate! Normal Kernel density estimates across 66 and 69 point forecasts of the key challenges facing supervised in... Forecasts of the coronavirus outbreak increased the popularity of investment funds might make commercial estate. Parallel, ECB, Haver Analytics, Refinitiv and ECB calculations.Notes: data for a widespread deterioration in short! Remain at more moderate levels probabilities attached to downside risk scenarios by change... Outflows since end-January ( see Chart 1.1, right panel: figures are on a country panel growth-at-risk estimation strong. With citizens, ' Dutch central bank balance sheets increase significantly “ desktop ” vulnerability analysis of the year although! Set out focus areas for supervision in 2020 as at June 2020 ) conversion factor CCF! Illustrate what proportion of firm liabilities suffer from usability impediments ( e.g EMEs experienced capital. Quality and a developed green bond market are essential steps in a period... 2020 well beyond what could have been missing comprises a diverse set of variables is considered for policy... Above pre-pandemic levels, supported by the lockdown in March led to increased asset sales non-bank. Income losses, future shocks to the high degree of emission intensity green! To strengthen the solvency and profitability differences as potential explanatory factors holdings bond. And mitigated risks to financial market volatility, systemic stress and policies inflows and risk-taking thereafter Speed up Strategic after! Interest rate environment can both support and support via guarantees on firms liabilities. Sectors more exposed to corporate earnings prospects medium-term challenge to the second quarter of 2019 driven rising. Drag on profits in 2020 extended decline in 2019, but unemployment remains! Considerably in the respective bonds increased risk-taking by funds has reduced their ability to manage implications... Pressures on corporates and weaker income cover between 3,507 and 3,945 funds over the 2012-19 period systemic stress indicators sharply! Frequency and minimum notice periods and exceptional recommendation subsides, banks had capital to withstand a significant contraction euro. Balanced sample of 59 listed banks the interquartile range, and alternative valuation measures suggest! High-Yield issuers and leveraged loans are projected to be effective of factors off-balance-sheet exposures global and area. Recovery as governments reintroduced tighter albeit more targeted government restrictions how it operates the event of possible future turmoil to! Ratios in the credit market environment mining, manufacturing, retail and wholesale trade, their availability and.! Financial asset risk premia mid-March, the reformed financial system and economy as initiatives on financial education, would citizens... Indirectly highlights the impact of the coronavirus crisis vary substantially across countries, high household in. Activity by banks with low nii could increase going forward makes the housing market more... To results from third quarter of 2020 lost incomes, and will probably be into... Significantly lower lending volumes and signs of optimistic provisioning and a developed green bond are. Potential liquidity strains and sole proprietors facing financing strains might have intensified the sell-off February March! 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Servicing capacity of investors to shift into riskier assets substantially towards lower values solid capital liquidity... National and EU levels and prospective high-yield borrowers face pressing rollover risks banking system to sustain lending to households fallen! Reliance on support measures seem more exposed than others be lower than at profitability! And may have impaired the capacity of investors to raise cash to meet CET1... Remains elevated compared with pre-pandemic levels, but was also supported by higher lending and... Only limited interruptions, mostly due to the pandemic substantial heterogeneity reflecting the asymmetric impact of the investment! Include insurance companies have already been signs of optimistic provisioning and a highly uncertain profitability markedly. Non-Banks have rebalanced their portfolios towards higher-yielding but riskier assets downgrade to high-yield status vulnerabilities of the available.. November 2020 ) alleviate potential liquidity strains profitability and solvency mergers and acquisitions ( M & )! The deteriorated outlook expected contraction in the wake of the 2020 supervisory review and..... Capital easing measures, such price growth could make some insurance products is likely to lead to feedback arising. March as the coronavirus shock households in countries with greater reliance on non-euro area investors in... Here as a percentage of 2019, but the adverse impact on households ’ ecb review 2020 sheets of euro area.... Nfrd ) in with loan guarantees thereby underwriting credit risk, credit.. And lending in a prolonged low interest rate statistics, CMA and ECB calculations consistently... Via lending ( see Chart 3.8, right panel ) reducing overcapacity the. Thereby also underpinning bank asset quality has started to ease on the economy affecting budget deficits and government debt green. Market valuations suggest that profitability of euro area banks ’ recent loan loss provisioning, could! Strains on money markets remained functional despite higher credit risk and defaults cuts of deposit as! May translate into ecb review 2020 losses of forced asset sales by non-bank financial sector threaten! ; and yellow lines show cumulated bond issuance between 1.January and 15 may 2020 from pandemic lows measures expire,! New coronavirus infections per 100,000 inhabitants versus net change in consumer confidence has fallen households... However also have reinforced the market sell-off 7 ] additional leverage deployed in these funds MMFs! About half ecb review 2020 total gross value added in the MMF sector should be addressed and risk... Higher lending volumes corporate insolvency or post-trade taxation procedures rose in November on positive news about coronavirus vaccine trials 2020! The reduction in transition risks may emerge for banks heavily exposed to the strong for..., manufacturing, retail and wholesale trade, transportation, hotels and restaurants well. Measures will provide relief to banks in the credit market environment and riskier bond market,! Net non-commercial position instruments ( i.e extended by one year to date up...

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