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Asian Markets Edge Down On U.S. – China Tensions

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china stock markets

Asian markets have started the week with a dip as ongoing U.S.-China trade talks continue to overshadow growth prospects.

“We think the market may pause for breath over the coming two to three weeks… While we are still bullish… based on valuations, technicals and the exogenous environment Sentiment for the rest of the month is likely to be heavily influenced by the ongoing U.S.-China trade negotiations,” Paul Greer, a money manager at Fidelity International, commented.

Worries ahead of pivotal talks next week have raised doubts across stock markets in early morning trading with Sydney and South Korea both edging lower and a slight uptick in China due only to exchanges reopening after a one-week holiday.

Kerry Craig, global market strategist at JPMorgan Asset Management, said: “We still have concerns about global growth and that centers on those U.S.-China negotiations. We’re unlikely to see any massive moves this week saying we’re going to get a deal on that.”

Ending its longest upward stretch in a year, the MSCI Emerging Markets Index declined last week  finally breaking through its 200-day moving average late January, to be dragged below that level on Friday.

The last time the measure fell below the 200-day level was in May, about four months before it sank into a bear market.

“Ongoing talks make a unilateral devaluation [of the yuan] very unlikely,” New York-based Zach Pandl of Goldman Sachs Group, said.

Guernsey Green Finance and UK Green Finance Initiative foster collaborative approach

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Credit: Photo by Enrapture Captivating Media on Unsplash

Guernsey Green Finance and Green Finance Initiative today confirmed their mutual support and commitment to collaboration in the promotion the development of green and sustainable finance.

Representatives of the two organisations met at City Week, the international financial services conference at London’s Guildhall, this week to strengthen ties between the sustainable finance initiatives of the two jurisdictions and foster cooperation on the development of green finance.

Speaking about today’s discussions, Sir Roger Gifford, Chair of the UK Green Finance Initiative, said:

There is no greater imperative for bankers and investors than financing the transition to a low-carbon future. The UK has demonstrated global leadership in green and sustainable finance time and again but collaboration is key. It’s both natural and necessary, therefore, to combine with our colleagues in Guernsey and we welcome working with Guernsey Green Finance in support of climate finance.

Guernsey Finance Deputy Chief Executive, Strategy, and Chair of Guernsey Green Finance, Dr Andy Sloan, said the Green Finance Initiative team, and Sir Roger in particular, had been incredibly supportive over the last two years.

They were instrumental in us developing Guernsey Green Finance and committing as a jurisdiction to strategic action on sustainable finance. I am delighted that we are able to formally confirm that collaborative approach between us to ensure that Guernsey fully plays its natural complementary role supporting the City and UK global leadership on green finance.

Given Guernsey’s strong and symbiotic connections with the City of London, City Week was the ideal opportunity for both organisations to get together and strengthen ties in our mutual objective – to promote the development of green and sustainable finance.

Guernsey Green Finance is the body responsible for the development of the sustainable finance sector in the island. It is a member of the United Nations’ Financial Centres for Sustainability Network and has been at the forefront of the development of green financial product launching world first regulated investment regime in 2019 and the jurisdiction is now looking to the development of regulated green insurance products.

Guernsey Green Finance

Sir Roger Gifford, Chairman of UK Green Finance, had previously visited the island in late 2017 to discuss opportunities in green finance with Guernsey industry and government representatives.

Dr Sloan said that the meeting had been productive, offering an opportunity to exchange thinking and understanding and to explore opportunities to work more closely together.

Guernsey Finance is a sponsor of City Week 2019, the premier gathering of the international financial services community in the City of London.

 

Release Ends    

Guernsey, located in the Channel Islands between the UK and France, is an independent dependency of the UK Crown. It is outside of the EU but is granted access to European markets through demonstrated regulatory compliance. Its finance industry is regulated, governed and operated by pragmatic domestic institutions to the highest international standards. Guernsey has approximately 1,000 investment funds domiciled or serviced in the island, 150 licensed fiduciaries and 800 licensed insurance vehicles.

The post Guernsey Green Finance and UK Green Finance Initiative foster collaborative approach appeared first on Green Finance Initiative.

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Guernsey Green Finance and UK Green Finance Initiative foster collaborative approach

0

Credit: Photo by Enrapture Captivating Media on Unsplash

Guernsey Green Finance and Green Finance Initiative today confirmed their mutual support and commitment to collaboration in the promotion the development of green and sustainable finance.

Representatives of the two organisations met at City Week, the international financial services conference at London’s Guildhall, this week to strengthen ties between the sustainable finance initiatives of the two jurisdictions and foster cooperation on the development of green finance.

Speaking about today’s discussions, Sir Roger Gifford, Chair of the UK Green Finance Initiative, said:

There is no greater imperative for bankers and investors than financing the transition to a low-carbon future. The UK has demonstrated global leadership in green and sustainable finance time and again but collaboration is key. It’s both natural and necessary, therefore, to combine with our colleagues in Guernsey and we welcome working with Guernsey Green Finance in support of climate finance.

Guernsey Finance Deputy Chief Executive, Strategy, and Chair of Guernsey Green Finance, Dr Andy Sloan, said the Green Finance Initiative team, and Sir Roger in particular, had been incredibly supportive over the last two years.

They were instrumental in us developing Guernsey Green Finance and committing as a jurisdiction to strategic action on sustainable finance. I am delighted that we are able to formally confirm that collaborative approach between us to ensure that Guernsey fully plays its natural complementary role supporting the City and UK global leadership on green finance.

Given Guernsey’s strong and symbiotic connections with the City of London, City Week was the ideal opportunity for both organisations to get together and strengthen ties in our mutual objective – to promote the development of green and sustainable finance.

Guernsey Green Finance is the body responsible for the development of the sustainable finance sector in the island. It is a member of the United Nations’ Financial Centres for Sustainability Network and has been at the forefront of the development of green financial product launching world first regulated investment regime in 2019 and the jurisdiction is now looking to the development of regulated green insurance products.

Guernsey Green Finance

Sir Roger Gifford, Chairman of UK Green Finance, had previously visited the island in late 2017 to discuss opportunities in green finance with Guernsey industry and government representatives.

Dr Sloan said that the meeting had been productive, offering an opportunity to exchange thinking and understanding and to explore opportunities to work more closely together.

Guernsey Finance is a sponsor of City Week 2019, the premier gathering of the international financial services community in the City of London.

 

Release Ends    

Guernsey, located in the Channel Islands between the UK and France, is an independent dependency of the UK Crown. It is outside of the EU but is granted access to European markets through demonstrated regulatory compliance. Its finance industry is regulated, governed and operated by pragmatic domestic institutions to the highest international standards. Guernsey has approximately 1,000 investment funds domiciled or serviced in the island, 150 licensed fiduciaries and 800 licensed insurance vehicles.

The post Guernsey Green Finance and UK Green Finance Initiative foster collaborative approach appeared first on Green Finance Initiative.

Become a member of The Financial Analyst today. TFA publishes original opinion and news content on trending financial topics and breaking stories related to analysis and global markets. If you have a tip or a financial opinion to share get in touch to submit your story.

Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks

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Using business registry data from China, we show that internal capital markets in business groups can propagate corporate shareholders’ credit supply shocks to their subsidiaries. An average of 16.7% local bank credit growth where corporate shareholders are located would increase subsidiaries investment by 1% of their tangible fixed asset value, which accounts for 71% (7%) of the median (average) investment rate among these firms. We argue that equity exchanges is one channel through which corporate shareholders transmit bank credit supply shocks to the subsidiaries and provide empirical evidence to support the channel.

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Goodman Logisassure (clone of authorised firm)

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Almost all firms and individuals carrying out financial services activities in the UK have to be authorised or registered by us. This firm is not authorised or registered by us but has been targeting people in the UK, claiming to be an authorised firm.

This is what we call a 'clone firm'; and fraudsters usually use this tactic when contacting people out of the blue, so you should be especially wary if you have been cold called. They may use the name of the genuine firm, the 'firm reference number' (FRN) we have given the authorised firm or other details.

You can find out more about this scam tactic and how to protect yourself from clone firms.

Clone firm details

Fraudsters are using or giving out the following details as part of their tactics to scam people in the UK:

Goodman Logisassure (clone of FCA authorised firm)

Website: www.glinvestmentsltd.com

Be aware that the scammers may give out other false details or mix these with some correct details of the registered firm.

FCA authorised firm details

This FCA authorised firm that fraudsters are claiming to work for has no association with the ‘clone firm’. It is authorised to offer, promote or sell services or products in the UK and its correct details are:

Firm Name: Goodman Logisassure (France)

Firm Reference Number: 836697

How to protect yourself

We strongly advise you to only deal with financial firms that are authorised by us, and check the Financial Services Register to ensure they are. It has information on firms and individuals that are, or have been, regulated by us.

If you want to check a consumer credit firm that may not yet have been authorised by us, please also check the Interim Permission Register.

If a firm does not appear on the Register but claims it does, contact our Consumer Helpline on 0800 111 6768.

There are more steps you should take to avoid scams and unauthorised firms.

You should also be aware that if you give money to an unauthorised firm, you will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.

Report a clone firm

If you think you have been approached by an unauthorised or clone firm, or contacted about a scam, you should contact us. If you were offered, bought or sold shares, you can use our reporting form.

What to do if your firm is cloned

If you think your authorised firm has been cloned or scammers are fraudulently using your name or other details, contact our Firm Helpline on 0300 500 0597.

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Become a member of The Financial Analyst today. TFA publishes original opinion and news content on trending financial topics and breaking stories related to analysis and global markets. If you have a tip or a financial opinion to share get in touch to submit your story.

SEC Obtains Emergency Order Halting Alleged Diamond-Related ICO Scheme Targeting Hundreds of Investors

The Securities and Exchange Commission today announced it has obtained a court order halting an ongoing $30 million Ponzi scheme targeting more than 300 investors in the U.S. and Canada. The SEC complaint unsealed Monday charges South Florida-based Argyle Coin, LLC, a purported cryptocurrency business, and its principal Jose Angel Aman with using investor funds to run a Ponzi scheme.

On May 20, the Honorable Judge Robin L. Rosenberg of the U.S. District Court for the Southern District of Florida granted the SEC’s request for a temporary restraining order and temporary asset freeze against Aman, Argyle Coin and other companies charged by the SEC as relief defendants. The court also appointed Jeffrey D. Schneider as a Receiver over Argyle Coin.

The SEC's complaint alleges that Aman operated Argyle Coin as a Ponzi scheme -- it used new investor funds to pay prior investors their purported returns.  As alleged, this fraud is a continuation of a scheme Aman orchestrated with two other companies he owns, Natural Diamonds Investment Co. (Natural Diamonds) and Eagle Financial Diamond Group Inc (Eagle).  According to the complaint, Aman engaged in unregistered offerings of securities in Natural Diamonds and Eagle as early as May 2014, falsely promising investors that the companies would invest in whole diamonds to cut down and sell for huge profits. Aman was assisted by Harold Seigel and Jonathan H. Seigel, who also have interests in Natural Diamonds and Eagle. According to the complaint, in October 2017, Aman and Jonathan H. Seigel continued the scheme by luring investors to invest in Argyle Coin, falsely claiming the investment was risk-free because it was backed by fancy colored diamonds, and promising to use investor funds to develop the cryptocurrency business. Instead, according to the complaint, Aman, Natural Diamonds, Eagle, and Argyle Coin, misused or misappropriated more than $10 million of investor funds to pay other investors their purported returns and for Aman's personal expenses, including rent on his home, purchases of horses, and riding lessons for his son.

"As alleged, Aman operated a complicated web of fraudulent companies in an effort to continually loot retail investors and perpetuate the Ponzi schemes as well as divert money to himself," said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. "The SEC's diligent investigative work uncovered the Ponzi schemes and our goal is to bring justice to the harmed investors."

The SEC's complaint charges Natural Diamonds, Eagle, Argyle Coin, Aman, Harold Seigel and Jonathan H. Seigel with violations of the securities registration provisions and also charges Natural Diamonds, Eagle, Argyle Coin and Aman with violations of the antifraud provisions of the federal securities laws. The SEC's complaint seeks disgorgement of allegedly ill-gotten gains and prejudgment interest from Natural Diamonds, Eagle, Argyle Coin, Aman, Harold Seigel, and the relief defendants, and financial penalties against Natural Diamonds, Eagle, Argyle Coin, Aman, Harold Seigel and Jonathan H. Seigel.

The SEC's investigation was conducted in the Miami office by Linda S. Schmidt with assistance from Kathleen Strandell, under the supervision of Glenn S. Gordon and Elisha L. Frank. The litigation is being led by Amie Riggle Berlin. The SEC appreciates the assistance of the Florida Office of Financial Regulation.

Become a member of The Financial Analyst today. TFA publishes original opinion and news content on trending financial topics and breaking stories related to analysis and global markets. If you have a tip or a financial opinion to share get in touch to submit your story.

Phoenix Capital SPRL (clone of authorised firm)

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Almost all firms and individuals carrying out financial services activities in the UK have to be authorised or registered by us. This firm is not authorised or registered by us but has been targeting people in the UK, claiming to be an authorised firm.

This is what we call a 'clone firm'; and fraudsters usually use this tactic when contacting people out of the blue, so you should be especially wary if you have been cold called. They may use the name of the genuine firm, the 'firm reference number' (FRN) we have given the authorised firm or other details.

You can find out more about this scam tactic and how to protect yourself from clone firms.

Clone firm details

Fraudsters are using or giving out the following details as part of their tactics to scam people in the UK:

Phoenix Capital SPRL (clone of FCA authorised firm)

Address: Nuffield House, Piccadilly, London, W1J 0DS, United Kingdom

Telephone: 0208 895 6930

Email: [email protected] 

Website: http://www.phoenixsprl.com/index.php 

Be aware that the scammers may give out other false details or mix these with some correct details of the registered firm.

FCA authorised firm details

This FCA authorised firm that fraudsters are claiming to work for has no association with the ‘clone firm’. It is authorised to offer, promote or sell services or products in the UK and its correct details are:

Firm Name: Phoenix Capital SPRL

Firm Reference Number: 799478

Address: Rue Victor Hugo 97, B-1410 Waterloo, Belgium

Email: [email protected]

Website: www.phoenix-cap.com 

How to protect yourself

We strongly advise you to only deal with financial firms that are authorised by us, and check the Financial Services Register to ensure they are. It has information on firms and individuals that are, or have been, regulated by us.

If you want to check a consumer credit firm that may not yet have been authorised by us, please also check the Interim Permission Register.

If a firm does not appear on the Register but claims it does, contact our Consumer Helpline on 0800 111 6768.

There are more steps you should take to avoid scams and unauthorised firms.

You should also be aware that if you give money to an unauthorised firm, you will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.

Report a clone firm

If you think you have been approached by an unauthorised or clone firm, or contacted about a scam, you should contact us. If you were offered, bought or sold shares, you can use our reporting form.

What to do if your firm is cloned

If you think your authorised firm has been cloned or scammers are fraudulently using your name or other details, contact our Firm Helpline on 0300 500 0597.

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Become a member of The Financial Analyst today. TFA publishes original opinion and news content on trending financial topics and breaking stories related to analysis and global markets. If you have a tip or a financial opinion to share get in touch to submit your story.

Over £27 million reported lost to crypto and forex investment scams

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The Financial Conduct Authority (FCA) and Action Fraud are warning the public to be wary of investment scams carried out via bogus online trading platforms. This warning comes as cryptoassests (crypto) and forex investment scams reports more than tripled last year to over 1,800. Fraudsters promise high returns from investments in crypto and forex, with victims losing over £27 million in total in 2018/19.

How the scams work

Fraudsters often use social media to promote their ‘get rich quick’ online trading platforms. Posts often use fake celebrity endorsements and images of luxury items like expensive watches and cars. These then link to professional-looking websites where consumers are persuaded to invest.

Investors will often be led to believe that their first investment has successfully made a profit. The fraudster will then contact the victim to invest more money or introduce friends and family with the false promise of greater profits. However, eventually the returns stop, the customer account is closed and the scammer disappears with no further contact. 

Action Fraud reports show that on average, victims were each scammed out of £14,600 from forex and crypto scams in 2018/19.

Raising awareness

As part of the FCA’s ScamSmart campaign the FCA will be running advertising to raise awareness of online trading scams. Running on social media, the ScamSmart adverts aim to make consumers more sceptical of ‘get rich quick’ trading scams promoted online.

Supported by the City of London Police, the FCA’s ScamSmart campaign encourages those considering an investment to check its dedicated website for tips on how to avoid investment fraud.

Director of Action Fraud, Pauline Smith, said:

'These figures are startling and provide a stark warning that people need to be wary of fake investments on online trading platforms. It’s vital that people carry out the necessary checks to ensure that an investment they’re considering is legitimate.

'Action Fraud is pleased to be partnering with the FCA to raise awareness of online trading scams, and we hope it will help prevent more people falling victim. Remember, if you think you have been a victim, contact Action Fraud.'

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA, said:

'We’re warning the public to be suspicious of adverts which promise high returns from online trading platforms. 

'Scammers can be very convincing so always do your own research into any firm you are considering investing with, to make sure that they are the real deal. Before investing online find out how to protect yourself from scams by visiting the ScamSmart website, and if in any doubt – don’t invest.'

Stay safe when scrolling

  • Don’t assume it’s real – professional-looking websites, adverts or social media posts don’t always mean that an investment opportunity is genuine. Criminals can use the names of well-known brands or individuals to make their scams appear legitimate. 
  • Stay in control – avoid uninvited investment offers whether made on social media or over the phone. If you’re thinking about making an investment, thoroughly research the company first and consider getting independent advice. 
  • Make the right checks – Firms providing regulated financial services must be authorised by the FCA. You can check whether they are authorised on the Financial Services Register. Use the contact details on the Register, not the details the firm gives you, to avoid ‘clones’.
  • Every report matters – If you have been a victim of fraud or cyber crime, report it to Action Fraud.

Notes to editors

  1. Cryptoassets is a broad term covering many different types of products. The most popular forms of cryptoassets include tokens like ‘Bitcoin’ and ‘Litecoin’. The FCA call these ‘exchange tokens’ but they are sometimes referred to as ‘cryptocurrencies’, ‘cryptocoins’, or ‘payment tokens’. Find out more about our approach to cryptoassets.
  2. Action Fraud data for forex and crypto investment scams. All losses have been taken from the field ‘amount given’ and ‘incurred losses’ on the Action Fraud reports which is not quality assured, therefore may contain errors when input by the victim. The data in the reports can be updated at any time by the victim on the live AF reporting tool, therefore losses for fraud can change.
    • No of reports = 530 (FY 2017/18)
    • No of reports = 1,834 (FY 2018/19)
    • Average loss = £14,600 (FY 2018/19)
    • Total loss = £27,366,127 (FY 2018/19)​​​​​
  3. Find out more information about the FCA.

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Become a member of The Financial Analyst today. TFA publishes original opinion and news content on trending financial topics and breaking stories related to analysis and global markets. If you have a tip or a financial opinion to share get in touch to submit your story.

Austria: EIB and Erste Bank promote affordable housing

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The EIB is providing Erste Bank der oesterreichischen Sparkassen AG (Erste Bank) with EUR 100m in financing to support affordable housing in Austria. Erste Bank will add a further EUR 100m of its own funds to the EIB financing, enabling it to invest a total of EUR 200m in social housing over the next three years.

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Internal Capital Markets in Business Groups and the Propagation of Credit Supply Shocks

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Luis de Guindos: Global financial regulation: where next? Pending tasks for regulators and macroprudential policy makers

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Speech by Luis de Guindos, Vice-President of the ECB, London City Week, London, 21 May 2019

Introduction

More than ten years have passed since the global financial crisis triggered a comprehensive regulatory reform process. Many important measures have been put in place since then. The title of the next panel discussion therefore raises a very pertinent question for global regulators: where next?

Should regulators take a long break, as some stakeholders might quietly hope? Or is there still work to be done? As you might imagine, I tend towards the view that it is not the time for regulators to rest.

In my remarks today, I will touch upon three areas that require further efforts. First, for the banking sector, we need to ensure the full and timely implementation of Basel III standards and a proper evaluation of the effects of the reforms. Second, macroprudential policy based on robust quantitative assessments should play a crucial role in sustaining the resilience of the financial sector over the financial cycle. Third, we need to see active monitoring of the non-bank financial sector, including from a system-wide perspective. This is because of the growing size and risk-taking activity of non-banks which may call for macroprudential powers and tools in this area.

Evaluating the effects of reform and implementing the Basel III package

Let me start with reform implementation and assessment. As the post-crisis reform agenda for the banking sector is now coming to an end, focus is gradually shifting towards evaluating the effects of the reforms. Such evaluation work is an essential part of the policy process. It helps us to understand whether the reforms are having the desired effect, and to identify potential unintended consequences that may have to be addressed. For these reasons, we fully support the evaluation work being carried out under the aegis of the Financial Stability Board. We are also conducting a number of evaluation projects of our own.[1]

One recent study by ECB staff, for example, finds that the reforms that are already in place have helped to make the euro area banking system safer. In particular, risks have been considerably reduced, and euro area banks are now better able to withstand shocks of the kind we have experienced in the past.[2]

On the one hand, this is a reassuring result, illustrating the progress we have made over the last few years. On the other hand, these results should not make us complacent. We need to keep up our efforts and strive for the full, timely and consistent implementation of those elements of the reforms that are still missing. For the EU, these include, in particular, the Fundamental Review of the Trading Book and the Basel III finalisation package of December 2017. The latter includes the so-called output floor, which limits the capital benefit a bank can gain from relying on internal models rather than on the standardised approach.

Some argue that these and other reform elements are not well-suited to the European market, and that they would have a disproportionate impact on EU banks. Nevertheless, while the reforms will require adjustment by some firms, the transition period – in particular for the output floor – will help to smooth the transition and make the impact manageable for banks.

Overall, I am deeply convinced that the reforms are necessary to restore confidence in the banking sector and will lead to a better prudential framework. It is thus essential that the entire Basel III package is implemented faithfully and consistently so that we can maintain a level-playing field at global level and ensure that the G20 framework delivers on its objectives.

Macroprudential policy and a macroprudential dimension to stress tests of the banking sector

The implementation of these reforms will mark the end of a long journey since the global financial crisis. Attention will shift towards ensuring the resilience of the banking sector over the financial cycle. Our macroprudential policy framework and related quantitative assessments, providing a macroprudential dimension to stress tests of the banking sector, will be cornerstones of this process.

Let me say a few words about our policy framework. Macroprudential powers were conferred on the ECB in 2014. The ECB shares responsibility for macroprudential policy in the euro area with the national authorities who actually implement macroprudential measures. The ECB is notified of hundreds of national measures each year and the ECB’s Governing Council may then raise objections. The ECB can also tighten, or “top up”, should measures be deemed insufficient, provided that these refer to instruments covered in European legislation – the Capital Requirements Directive and the Capital Requirements Regulation.

The combined macroprudential buffer requirements in the euro area currently range between 2.5%- to 5.75% depending on the country. Banks directly supervised by the ECB fall in the categories of globally systemically important institutions (G-SIIs) or other systemically important institutions (O-SIIs) and are thereby subject to the respective capital buffers. Four countries (soon to be five) have activated the systemic risk buffer, while two have activated the countercyclical capital buffer with a further three announcing positive countercyclical capital buffer rates for the near future.[3]

Looking ahead, macroprudential policy should play an important role in ensuring the resilience of the banking sector to adverse shocks. At this stage of the financial cycle, is would still be desirable for a number of euro area countries to build-up macroprudential buffers, in my view. The crisis taught us that we must be vigilant in safeguarding the resilience of our financial system at times when vulnerabilities are building up.

The slower growth momentum we are seeing increases the risk of tail events, in other words, shocks that are unlikely to occur, but would have a significant impact on the financial system and the economy if they did. Bank capital plays a crucial role in absorbing these tail risks: it provides solvency insurance and makes it more likely that banks will be able to continue to provide credit during a downturn.

From a macroprudential perspective, then, the continued build-up of buffers could therefore be justified, especially in those countries where the long upturn may have led to an underestimation of credit risk or where private indebtedness is particularly high or rising.

Ensuring that buffers are adequate is not just a task for regulators. It is in the interest of banks too. It contributes to restore confidence in the sector. Improving bank profitability in a sustainable way, for example by adjusting business models, would help banks improve their capital generation capacity while also making it easier for them to raise capital externally when needed.

This brings me to the concept of macroprudential stress testing, a key analytical tool that helps us assess the resilience of the financial system over the cycle. Unlike regular supervisory stress testing, it accounts for banks’ reaction to adverse circumstances and its impact on the real economy that may further stress banks’ operating environment. As such, it can provide a more complete picture of banks’ performance and capital needs. It can therefore lead to more realistic results for policy use.

The ECB’s macroprudential stress test framework not only tracks the resilience of individual banking institutions but also accounts for how banks interact with each other and how their actions feed back to the economy. It internalises the fact that banks may deleverage in response to negative developments. It subsequently, takes into account the extent to which this adverse credit supply shock may aggravate the downturn leading to a further deterioration in banks’ balance sheets.

This framework complements the EU-wide stress testing exercises conducted under the aegis of the European Banking Authority (EBA), which are mainly of a micro-prudential nature. A macroprudential exercise conducted in 2018 for banks directly supervised by the ECB[4] using the baseline and adverse scenarios of the recent EBA stress test, confirmed the general resilience of the euro area banking system. Bank deleveraging and feedback to the real economy would however lead to a substantial drop in lending to the non-financial private sector. This would lead to an additional fall in GDP of 1.6% across the euro area, on top of the original GDP shocks in the adverse scenario over the three-year horizon.

This analytical framework can also help us to calibrate macroprudential policies. The framework shows, for instance, that the timing of the activation of capital-based measures matters for their effectiveness. If a new policy tool is introduced in good times, banks are able to build up additional capital by retaining their profits, and they do not need to shrink their loan books to improve their capital ratios. A new capital policy tool that is introduced in bad times however is likely to trigger a reduction in credit and place an additional drag on the economy. Bad timing increases the cost of macroprudential and regulatory interventions, potentially rendering such measures counter-productive.

Risks and macroprudential policy for the non-bank financial sector

Let me now turn to the non-bank financial sector which is becoming ever more important for our financial system. In my view, work on the regulatory and, in particular, the macroprudential framework for this sector is still in its early stages.

The share of market-based financing is likely to continue growing, not least in view of the efforts made in the context of the capital markets union, which will have tangible benefits for the euro area economy as a whole. More integrated and deeper European capital markets will promote a more diversified funding base for the European corporate sector. This, in turn, will help firms weather a possible shock to the banking sector and a resulting decline in the supply of bank credit, as they would be able to draw on other – market-based – funding sources. But this can only happen if market-based finance remains resilient in the face of such a shock.

The benefits of a growing non-bank financial sector are currently accompanied by potential vulnerabilities. In search of higher yields, non-banks have accumulated more credit and liquidity risks on their balance sheets. This renders them more vulnerable to the low credit quality and high indebtedness in some segments of the corporate and government sector. Moreover, non-banks may be contributing to the current cyclical underpricing of risk and helping to amplify the upswing in the wider financial cycle. This is partly because non-banks are subject to lighter regulatory constraints which in some cases allow them to take on more risks. If risks were to unwind in a disorderly manner we could see funding flows dry-up and funding conditions in the real economy affected more broadly.

If we were to reap the benefits of a deep and integrated European capital market, then, non-bank financing needs to develop in a sustainable manner. In this changing environment, it is important to strengthen our risk identification and monitoring framework. International cooperation is needed to develop tools for stress testing but now at system-wide level, in the form of models that incorporate both banks and non-banks, consider feedback and amplification from the interaction between sectors and look for tipping points and non-linear responses.

From a regulatory perspective, at least two lines of defence are needed to counter evolving risks. First and foremost, prudential standards must remain solid in the non-bank financial sector. But this alone will not be sufficient if risks evolve more broadly and across institutions. An extension of the macroprudential toolkit to the non-bank financial sector is needed, thereby providing the authorities with the means to address risks at the system level. While the macroprudential framework for banks is relatively well developed and gives authorities tools with which to address cyclical and structural systemic risks, the framework for non-banks is still in its infancy and needs further development. Such a framework would need to be capable of identifying and addressing the key fragilities and externalities stemming from the non-bank sector, and provide authorities with the tools that would allow them to achieve this in an efficient and effective manner.

Concluding remarks

Let me conclude. The regulatory community has been striving to establish a framework that makes our financial system more resilient. While much has been achieved, I do not believe that we can now rest on our laurels.

On the contrary, in particular the three remaining tasks outlined today require our continued effort. The Basel III package for the banking sector should be implemented in a timely and consistently manner across jurisdictions thereby ensuring that a level-playing field is preserved. As attention shifts towards maintaining the resilience of the banking system over the financial cycle, macroprudential policy and related quantitative assessments become prominent. Adding a macroprudential dimension to stress tests of the banking sector is essential. Finally, developments in the non-bank financial sector call for an active monitoring and the extension of the macroprudential policy toolkit to this sector.

Thank you for your attention.

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