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What to do with home sovereign exposure? Reducing risks to make the EU Banking Union stronger

March 22, 2021
The coronavirus pandemic has caused a surge in public debt and highlights the need to tackle sovereign risk on bank balance sheets, which remains a threat to the stability of the Banking Union. Euro-area banks hold bonds and have granted loans to their domestic sovereigns worth a combined EUR 2.1 tr, equalling 6.2% of total assets. Among the largest countries, banks in Italy have the highest exposure relative to capital (194%), followed by Spain (105%), whereas it is much lower in Germany (67%) and France (60%). Sovereign risk must be mitigated to finalise the Banking Union but this will require some honest acknowledgements by supervisors and entail restrictions for banks and politicians. [more]

More documents about "Banking and financial markets"

179 (85-96)
February 4, 2016
In 2014, for the first time, the number of cashless payments in the euro area did not grow – according to ECB figures. The transaction volume remained flat at 68 bn payments. However, this is due to an overhaul of the statistical methodology which caused breaks in many of the series. Corrected for this, there was actually a strong development of the market: cashless payments grew by about 7% yoy or almost 5 bn transactions. This growth rate is even at the upper end of growth in recent years. [more]
January 11, 2016
The digital revolution is having a beneficial economic effect: new technologies are appearing at a faster rate. Of course, many of these technologies are still in their infancy and in some cases are still in the visionary stage, but they nevertheless hold unforeseen and lucrative potential. The race for digital technologies and appropriate monetisation strategies has been on for some time, especially among the large internet platforms. In the future, however, digital technologies will also find their way into traditional companies where they will gradually evolve into a comparative competitive advantage. This poses a number of advantages and disadvantages, which we urgently need to discuss. [more]
December 23, 2015
The financial and economic crisis brought development banks back in the spotlight. They are seen as part of the economic policy toolkit for overcoming cyclical and structural difficulties in economies, complementing financial systems by improving their functioning and bolstering economic resilience. Interest in development banking to promote growth and boost investment has increased especially in Europe of late. Given the current economic environment and changes in Europe’s banking and financial markets, development banks are bound to continue playing an important role in the coming years. Rather than crisis relief, their focus is shifting (back) to supporting structural change in economies. Here, they can play a useful complementary role, focusing on areas of market failure but risks lie with potential “overburdening” of development banks and setting expectations too high for what they can achieve. [more]
December 18, 2015
With 2016 just around the corner, the outlook for the European banking sector in the new year looks more promising than it has been for almost a decade. Growth, though meagre, has returned to many business segments and regions. Despite unrelenting pressure on interest margins, total revenues are expanding. Asset quality is improving and profits in 2015 may be the highest since 2007. The biggest questions surround the future path of regulation (where another major round of tightening could paradoxically threaten the recently hard-won stability) and of the European and global economy (which has repeatedly and substantially surprised to the downside in recent years) in 2016. [more]
December 9, 2015
As digital processes reshape commerce and social life, payment service providers are striving to offer users instruments to transfer funds in a way that matches this immediacy and ubiquity. With the payments market in such a flux, the ECB is pushing banks to provide at least one pan-European instant payment solution in order to prevent a re-fragmentation of the Single Euro Payments Area. However, instant services can be based on different technical set-ups: closed-loop, open-loop and decentralised payment networks. There is an opportunity for new technologies and providers to cater for user needs and win market share. Innovation in instant payments will not alter the economics of payments, though. Positive network externalities and economies of scale in electronic processing will probably lead to a consolidation around a few instant payment systems in the long run. [more]
November 2, 2015
The creation of a European Capital Markets Union (CMU) aims to establishing a single market for capital to complement bank financing. In this paper, we make a quantitative assessment of the European stock, bond and securitisation markets to look at the CMU’s potential. Our results reveal that liquidity and IPO trends in European stock markets are similar to those in the US. However, market integration has slowed down in recent years, which the CMU could counter by harmonising company, securities and insolvency laws. European corporate bond markets have become a notable alternative to bank lending but their investor base remains restricted, which the CMU should address. The securitisation market in Europe has performed well throughout the crises and its revival is a sine qua non for lending to regain traction, especially to SMEs. The CMU should thus target a less punitive regulatory treatment for this market segment. [more]
October 19, 2015
Contrary to what some critics say, traditional banks would be well advised to start using digital and algorithm-based data analysis instruments now. In future, this will be the only way they can offer their customers personalised financial services and recommendations and continually optimise their internal processes. Should they hesitate, however, the technology-driven, non-bank market newcomers will continue to extend their information lead and in time begin to offer more financial services (also outside the retail banking segment) that are easy to standardise and automate. The latter would further intensify cut-throat competition in the financial industry and could reduce traditional banks in the case of some financial services to pure-play infrastructure providers with declining customer contact. The introduction of so-called recommendation algorithms should be accompanied by the mandatory consent of the customer and transparent communication on how they function. [more]
September 21, 2015
In German corporate lending business, the role played by the different banking groups varies considerably between individual industries. For instance, a relatively large share of loans to the manufacturing sector – and particularly the "core" of German industry, mechanical engineering and automotives – is provided by commercial banks. Lending to construction and agricultural firms, on the other hand, is dominated by savings banks and cooperative banks. The retail banks have also gained significant ground in the services sector over the past 10 years. Landesbanks have only two strongholds, utilities/mining and transport. [more]
August 21, 2015
After literally seven lean years, the European banking industry’s recovery from the financial crisis is now in full swing. Profits are at their highest level since 2007, revenues are growing across the board (helped by favourable currency effects) and loan losses are falling. Banks are also expanding business volumes. Capital ratios are on average substantially above Basel III requirements, though uncertainty has increased recently due to a pending further regulatory tightening (“Basel IV”). [more]