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05 May 2015

Deepening EMU – Round-up of Key Events – April 2015

Cyprus was ‘back on track’ with the programme after the foreclosure framework implementation, but for Greece, "time is running out". Studies shows the dangers of Brexit for businesses and insurance. ECB an EU Commission held a Conference on Financial Integration and Stability.


After the Eurogroup meeting of 24th April, Jeroen Dijsselbloem made some remarks regarding Spain, the SSM, and growth and jobs in the EU, and celebrated Cyprus was ‘back on track’ with the programme after the foreclosure framework implementation.

As for Greece, Dijsselbloem warned that “time was running out”. It seems there will be no agreement between the Greek government and its Eurozone partners. Short of cash, Alexis Tsipras will have no choice but to suspend payment of its maturing debts. VoxEu takes a look at what happens next. The author concludes that “the ECB’s duty is to announce very soon that it will do whatever it takes to keep the Eurozone whole.”

This can be applied also to the UK; a new study from Bertelsmann Stiftung notes that a Brexit could cost the UK more than €300 billion, while the remaining EU member states would only experience minor economic losses from an exit. The review of the Balance of Competences between the UK and the EU, published by the Senior European Experts, provide food for thought on what are the advantages and disadvantages of EU policies, and on future options and challenges.


At a Conference on Financial Integration and Stability held together with the EU Commission in Brussels, the ECB said that financial integration in Europe is rebounding. The `EFSIR’ was launched at the same conference, and has a special focus on particular policy areas that impact European financial stability and integration developments including those expected to have a significant impact on economic growth. On his side, ECB's Vítor Constâncio argued that non-banks should also undergo stress tests in order to help underpin the integrity of the region's financial system. At the conference Danièle Nouy maintained that: "CMU can increase the resilience of the financial system”.

EBA published a revised version of its 2015 Work Programme, following the receipt of some additional mandates and a reduction to the EBA budget. EBF responded to the resolution authority’s consultation paper on draft ITS on procedures, forms and templates for the provision of information for resolution plans, acknowledging that EBA will have flexibility to adapt the scope and the level of detail required.

The FSB launched second peer review on resolution regimes, with the objective of examining the range and nature of resolution powers for the banking sector. It also took stock of any requirements for recovery and resolution planning for domestically incorporated banks that could be systemically significant or critical in failure.

The Financial Times noted that Stagnation, fines and regulation leave European banks struggling. Nonetheless, it seems that south European banks have taken advantage of bailouts, since the EU may consider probes into unfair state aid. Greece is a particular worry for regulators as Athens says deferred tax assets represent some 30 to 40 per cent of the core tier one capital in the country’s main banks.

As for the ECB, an ICMA official told Reuters that it risks secured-lending or repo markets grinding to a halt unless it works more closely with national central banks to improve liquidity.

Regarding the securitisation market, a CFA Institute study called for standardisation, simplification and transparency within the shadow banking sector, providing a unique investor perspective on what it will take for these financing vehicles to take hold and support economic growth.

The meeting of the European Securities Committee produced documents on transparency, SMEs and growth, FX contracts, investor protection (including payment for research), reasonable commercial basis and portfolio compression. As a result, Markets Media commented that the future of CSAs in Europe under MiFID II is in doubt as the UK’s Financial Conduct Authority presses its view that CSAs fail to adequately separate commissions paid for execution from commissions paid for research.

ISDA Derivatives advised that, to avoid cross-border fragmentation, trading rules need to work together. Along these lines, ESMA consulted on draft guidelines specifying criteria for the assessment of knowledge and competence in MiFID II.

On derivatives, ISDA outlined a path forward for centralized execution of swaps, however, the alarms have gone off as regulators warned OTC derivatives are out of control while the Financial Times informed that centralised risk has raised systemic worries over derivatives. FIA Global will call for greater transparency and disclosure from clearers for banks and broker-dealers to help identify credit and operational risks.

This comes after regulators put pressure on the global market to push more swap trades into clearing houses. Seven of these European derivatives exchanges operators have hit back at regulators’ plans to give investors greater choice to trading futures and options, saying draft laws underplay risks to financial stability.

Moreover, Tabb Forum alerted that, with mandatory clearing approaching, a global collateral shortfallto as much as $8 trillion is widely anticipated. Moreover, there is a fear that CCPs will lower their collateral standards in order to facilitate client clearing and win new business. However, the ECB’s Benoît Cœuré said that CCPs needed to increase their existing loss-absorbing capacity because of their growing systemic importance.

ICMA reported on why corporate bond markets are so important and why it is therefore essential that laws and regulations that affect them avoid any unintended adverse consequences that could inhibit those markets. 

PensionsEurope warned that the current low-interest rate environment and the QE policy of the ECB have put severe pressure on pension funds.

On money market funds, EFAMA was concerned the MMFR report by the EP was at odds with Capital Markets Union’s policy focus to promote alternative sources of financing to the economy, and would, if implemented, seriously impact the ability for companies in Europe to manage their liquidity and the short term funding that MMFs provide to the capital markets. Europe Economics published a paper on the impact of the changes contained in the amendments to the proposed regulation on MMFs being considered by the European Parliament.

Regarding insurance issues, EurActiv found the EU Commission is to put financial services and insurance under the spotlightin order to gauge how fragmented markets are and what can be done to encourage more cross-border activity in the insurance sector. EIOPA had to re-prioritise its 2015 Work Programme to align it with the budget reduction of 7,6%, and as result, 31 products were reduced in scope, 12 downgraded and 27 were cut entirely from the Work Programme.

AM Best launched a new Best's Briefing stating that insurers must consider risks of U.K. exit from the European Union, saying one potential consequence could see European competitors taking advantage of the uncertainties in the next few years to attract business away from UK insurers.

The IASB Chairman presented its newly developed mission statement, the Financial reporting standards for the world economy, and IFRS Foundation's updated guide to IFRS use around the world.

Convened by IFAC, the "Accountability. Now." coalition meeting supported better public sector financial reporting, greater government transparency and accountability, and empowered citizen engagement.

Finally, FEE published a comment letter on the Basel Committee’s consultation on guidance on accounting for expected credit losses, agreeing with the 11 principles for banks included in the consultation paper. FEE sees the principles as an effort from the regulator to flag specific areas of an ECL model that a bank should be aware of as these areas of the model might cause implementation challenges. 

© Graham Bishop

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