EU Level Covid-19 support measures in banking and capital markets

26 May 2020 | newsletters

status as at 26/05

Note: recently updated content is highlighted in grey


EU Regulation

The Coronavirus Response Investment Initiative Regulation (CRII)

  • CRII aims to swiftly direct EUR 37 billion of cohesion policy funds to strengthen healthcare systems, support SMEs, short-term employment schemes and community-based services. It also includes the widening of the scope of the EU Solidarity Fund by up to EUR 800 million to enable the EU Member States to draw additional funds in case of public health emergencies. CRII amends (i) the European Regional Development Fund (ERDF) Regulation, (ii) Regulation (EU) No 1303/2013 (the Common Provision Regulation), and (iii) the EMF Regulation (EU) No 508/2014.
  • 02/04: The EC proposed the new measure Coronavirus Response Investment Initiative Plus (CRII+) allowing for more efficient mobilisation of funds from the European Structural and Investment Funds.
  • Status: In force, published on 31 March 2020, proposed on 13 March 2020.

Amendment to EUSF Regulation (EC) No 2012/2002 setting out a period of six months within which the beneficiary State shall report on its implementation and justify the expenditures used.

  • Status: In force, published on 31 March 2020, proposed on 13 March 2020.

EC Coronavirus Response

  • 28/04: The EC has adopted a Coronavirus Response banking package to help facilitate bank lending to households and businesses throughout the EU by introducing a proposal for an amendment to the CRR followed by the interpretative communication guiding the NCAs to profit from the flexibility of accounting and prudential frameworks. The proposed changes do not aim at fundamentally changing the regulatory framework but represent collective efforts aimed at mitigating the impact of the pandemic supporting fast recovery. The CRR amendment aims to:
    • adjust the transitional arrangements that allow credit institutions to alleviate the impact of the expected credit-loss provisioning under IFRS 9, on their funds;
    • set the rules on the minimum loss coverage for non-performing exposures and extend them temporarily;
    • modify the offsetting mechanism connected with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio;
    • defer the application date of the new leverage ratio buffer requirement freeing up credit institutions’ operational capacity in line with the Basel Committee on Banking Supervision;
    • advance some of the capital benefits envisaged in the CRR that are not yet applicable (e.g. provisions on the treatment of certain software assets, the revised supporting factor for SMEs).

ESMA

  • 20/05: ESMA issued a public statement on the implications of the COVID-19 pandemic on the half-yearly financial reports of listed issuers, where ESMA, among others:
    • acknowledges that some issuers may consider setting the timing of publication of their half-yearly financial reports later than usual, however, emphasises that the objective of providing timely, relevant and reliable information, while not unduly delaying the publication of periodic reports is of the essence;
    • expects the issuers to include a particularly extensive update for the upcoming half-yearly financial statements concerning the events related to the COVID-19 outbreak under IAS 34;
    • urges the issuers to (i) make the disclosures reflect the significant uncertainties, going concern and risks linked to COVID-19, (ii) include any impairment of non-financial assets, and (iii) present COVID-19-related items in the statement of profit or loss;
    • recommends that issuers provide detailed and entity-specific information in their interim management reports regarding the impact of COVID-19 and the approach to mitigation thereof.
  • 18/05: Non-renewal and termination of short-selling bans in several EU countries. See Ban on short-selling below for details.
  • 14/05: First risk dashboard for 2020 shows increased risk in each area supervised by ESMA noting very high uncertainty with potential decoupling of market performance against the underlying economic activity.
  • 14/05: ESMA issued a statement in support of ESRB´s 06/05 recommendation on liquidity risk in investment funds. The recommendation urges NCAs to undertake focused supervisory engagement with investment funds that have significant exposures to corporate debt and real estate (i.e. less liquid asset categories) and to use liquidity management tools in a timely and effective manner.
  • 13/05: In its thematic report on EU CLO credit ratings, ESMA formulated certain supervisory concerns in connection to significant risks for CLO instruments posed by COVID-19 pandemic addressing, among others:
    • the internal organisation of credit rating agencies (CRAs);
    • the interactions between CRAs and CLO issuers (independence of rating process);
    • potential operational risks caused using third-party models and data;
    • rating methodologies, modelling risks and commercial influence and supervision of their transparency;
    • importance of thorough analysis of CLOs.
  • 06/05: Following the increase in retail trading activity during this volatile and increased risk period caused by COVID-19, the ESMA issued a public statement reminding investment firms of their business conduct obligations under MIFID II. ESMA emphasised that the IFs have even greater duties during the time of crisis when providing investment or ancillary services to investors who decide to invest during the intensified market volatility, especially when they are new or have limited investment knowledge or experience.
  • 04/05: The ESAs (ESMA, EBA, EIOPA) published joint draft RTSs to incorporate a one-year deferral of the two implementation phases of the bilateral margining requirements under EMIR as agreed by the BCBS and IOSCO to provide additional operational capacity for counterparties to respond to the immediate impact of COVID-19. This would result in covered counterparties with an aggregate average notional amount of non-centrally cleared derivatives:

    • above EUR 50 billion becoming subject to the requirement to exchange initial margin from 1 September 2021;

    • above EUR 8 billion becoming subject to the requirement from 1 September 2022.

  • 17/04: Q&A by ESMA regarding the alternative performance measures (APM) addressing certain issues in the context of COVID-19 and amending the ESMA Guidelines on APMs.
  • 09/04: Public statement postponing the application of the annual non-equity transparency calculations and the calculations for the systematic internaliser test for derivatives, ETCs, ETNs, emission allowances and structured finance products (SFPs) under MiFID II, which include the liquidity assessment and the determination of the pre-trade and post-trade large in scale and size specific to the instrument thresholds from 30 April 2020 to 15 July 2020, and their application from 1 June 2020 to 15 September 2020. In case of the publication of data for the performance of the systematic internaliser test for derivatives, emission allowances and SFPs, ESMA will publish this data by 1 August 2020 and the mandatory systematic internaliser regime for derivatives, emission allowances and SFPs will apply from 15 September 2020.
  • 09/04: Public statement to promote coordinated action by the NCAs regarding the timeliness of fulfilling external audit requirements for interest rate benchmarks expects NCAs not to prioritise supervisory actions against administrators and supervised contributors regarding the timeliness of fulfilling those audit requirements where the audits are carried out by 30 September 2020 and to generally apply a risk-based approach in the exercise of their powers.
  • 09/04: Public statement on actions to mitigate the impact of COVID-19 on the deadlines for the publication of periodic reports by fund managers (UCITS, self-managed UCITS, authorised AIFMs, EUVECA, EuSEF managers and others), coordinates actions by the NCAs expecting them not to prioritise supervisory actions against FMs for a certain period of time (one to two months after the normal periodic report submission deadline) and apply a risk-based approach in exercise of their powers.
  • 09/04: ESMA further extends the response date for the consultation on the MIFID II/MIFIR review report on the transparency regime for non-equity instruments and the trading obligation for derivatives to 14 June 2020.
  • 02/04: ESMA Risk Dashboard Risk update supplementing ESMA´s regular TRV and Risk Dashboard monitoring as a response to signs of stress in certain segments of the market and a prolonged period of market correction risk to institutional and retail investors.
  • 31/03: Public statement on no-action relief for the best execution reporting under MiFID 2 and MIFIR under RTS 27 (the data to measure the quality of execution on execution venues) and 28 (the data to evaluate the quality of a firm’s execution practices) recommending to the NCAs to push the deadline for RTS 27 to a reasonable date and RTS 28 to or before 30 June 2020.
  • 27/03: Statement on publication deadlines under the Transparency Directive, recommending NCAs to apply forbearance powers towards issuers who need to delay publication of financial reports beyond statutory deadline. ESMA underlines that issuers should keep their investors informed of the expected publication delay and that requirements under the MAR still apply.
  • 26/03: Revises statement of 18 March regarding no-action relief, postponing the reporting obligations related to securities financing transactions under SFTR and MIFIR to 13 July and clarifies that SFTs concluded between 13 April and 13 July and SFTs subject to backloading are encompassed as well (find more info here).
  • 25/03: Guidance on accounting implications of the economic support and relief measures adopted by the Member States re amongst other moratoria on repayment of loans and their impact on the calculation of expected credit losses (ECL) under IFRS9.
  • 20/3: Public statement: competent authorities should not prioritise their supervisory actions concerning the new tick-size (i.e. the minimum price movement of a trading instrument) regime introduced in MiFIR towards systematic internalisers, as of 26 March 2020 and until 26 June 2020, and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner to mitigate the impact of COVID-19 on European systematic internalisers.
  • 20/3: ESMA recognises that the application by firms of the MiFID II requirements on the recording of telephone conversations may in some scenarios (linked to COVID-19) not be practicable. Companies expected to mitigate risk in such cases accordingly.
  • 18/3: Reporting obligations related to securities financing transactions under SFTR and MIFIR postponed to 13 July. ESMA expects national supervisors to not take relevant supervisory action (before the new deadline, for details, see ESMA´s statement dated 26/03 above).
  • 16/03: Decision temporarily requiring the holders of net short positions in shares traded on an EU regulated market to notify the national competent authority, if the position reaches or exceeds 0.1 % of the issued share capital. 
  • 11/03: ESMA Recommended to Financial Market Participants to:
    • be ready to apply their contingency plans, including the deployment of business continuity measures;
    • disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospects or financial situation (under Market Abuse Regulation);
    • provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance;
    • apply the requirements on risk management.

Ban on short-selling

  • 18/05: Termination of short-selling bans in:

Please note that the ESMA’s decision requiring net short positions holders to report new positions of 0.1% of the issued shares capital is still in force (see ESMA 16/03 above).

ECB

  • 22/05: ECB released the statistics for the first quarter of 2020 analysing the state of financial vehicle corporations (engaged in securitisation) and investment funds in the Euro area.
  • 20/05: ECB issued its opinion on amendments to the Union prudential framework in response to the COVID-19 pandemic, summarising and reflecting upon the precautions taken so far to alleviate the negative economic impact of the COVID-19 pandemic.
  • 11/05: In reaction to its 07/04 and 22/04 collateral easing measures (see below), the ECB amended the Guideline ECB/2014/31 on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.
  • 08/05: Based on the results of the Survey on the Access to Finance of Enterprises (SAFE), the economic outlook and environment for SMEs has sharply deteriorated in the context of COVID-19.
  • 01/05: New Economic Bulletin has been issued analysing the impact of the COVID-19 pandemic on economic activity in the euro area under different scenarios where the impact ranges from mild to severe.
  • 30/04: Both APP (asset purchase programme, see 12/03 below) and PEPP (pandemic emergency purchase programme, see 18/03 below) will continue to counter the risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the coronavirus pandemic. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25 % and -0.50 % respectively.

  • 30/04: ECB reduced interest rates on all TLTROs III (see 12/03 below) by 25 basis points to -0.5% from June 2020 to June 2021. The interest rate can reach up to -1 % in case of banks that meet the 0 % lending threshold on 12/03. The lending assessment period has been brought forward to 1 March 2020.
  • 30/04: New pandemic emergency longer-term refinancing operations (PELTROs) announced by the ECB to ensure sufficient liquidity and favourable money market conditions during the pandemic. The ECB will provide an effective backstop after the expiry of the bridge longer-term refinancing operations (LTROs) that have been conducted since March 2020 (see 12/03 below). PELTROs will be carried out as fixed rate tender procedures with full allotment with an interest rate that is 25 basis points below the average rate on the main refinancing operations prevailing over the life of each PELTRO.
  • 29/04: ECB issued a communication to reporting agents on the extension of deadlines for the reporting of statistical information in the context of COVID-19 extending the reporting duties of:
    • insurance companies (Regulation No. 1374/2014) by eight weeks in case of the annual data (one week for quarterly remittance);
    • pension funds statistics (Regulation No. 2018/231) by eight weeks in case of the annual data (two weeks for quarterly remittance);
    • payment services providers (Regulation No. 1409/2013) by four weeks.
  • 28/04: The euro area bank survey for Q1 2020 is now available. It shows, among others:
    • growing demand for loans from companies in reaction to COVID emergency liquidity needs, while the tightening of banks´ credit standards was rather small compared with the financial and sovereign debt crises;
    • lower net demand for consumer credit and housing loans and tightening of credit standards by banks in reaction to the deterioration of the economic outlook, a worsening of creditworthiness of households and lower risk tolerance of banks.
  • 27/04 ECB launched a webpage with an overview of measures taken to support the economy of the EU.
  • 22/04: Steps to mitigate the impact of possible rating downgrades on collateral availability were taken by the ECB. These include, among others, (i) oversight of eligibility of marketable assets used as collateral in Eurosystem credit operations falling below current minimum credit quality requirements and easing the requirements for such collateral, and (ii) haircuts for assets that fall below the Eurosystem minimum credit quality requirements.
  • 16/04: ECB announced a temporary reduction in capital requirements for market risk (the qualitative market risk multiplier) by allowing banks to adjust the supervisory component of these requirements in response to extraordinary levels of volatility in financial markets.
  • 14/04: ECB published an overview of macroprudential measures taken by the national authorities since the outbreak of the coronavirus pandemic.
  • 07/04: ECB adopted a package (see the respective ECB decisions HERE and HERE) of temporary collateral easing measures complementary to e.g. LTROs (see 12/03 below) and the PEPP (see 18/03 below) containing three main features:
    • expanding the use of credit claims as collateral including the possibility to accept loans with lower credit quality, loans to other types of debtors, not accepted in the ECB’s framework, and foreign-currency loans, e.g. government and public sector guaranteed loans to private entities and individuals, enlarging the scope of acceptable credit assessment systems used in the additional credit claims (ACC) frameworks and reducing the ACC loan level reporting requirements;
    • lowering of the level of the non-uniform minimum size threshold for domestic credit claims to EUR 0, increase from 2.5 % to 10 % in the maximum share of unsecured debt instruments issued by any single other banking group in a credit institution’s collateral pool, waiver of the minimum credit quality requirement for marketable debt instruments of Greece as collateral in Eurosystem credit operations;
    • increase of ECB Governing Council´s risk tolerance level in credit operations through a general reduction of collateral valuation haircuts by a fixed factor of 20 %.
  • 27/03: Recommendation on dividend distributions during the COVID-19 pandemic stressing out that no dividends are to be paid out at least until 1 October 2020, no irrevocable commitment to pay out dividends is to be undertaken by the credit institutions for the financial year 2019/2020 and that credit institutions should refrain from share buy-backs aimed at remunerating shareholders. In case to the contrary, such credit institution should state the reasons immediately.
  • 26/03: Economic bulletin offering an outlook on economic and monetary developments, many of which have been critically impacted by the COVID-19 pandemic.
  • 24/03: Decision (EU) 2020/440 on a temporary pandemic emergency purchase programme (for details, see 18/03 below).
  • 18/03: The ECB has announced various liquidity stimulating measures, amongst others the launch of a EUR 750 billion Pandemic Emergency Purchase Program (PEPP), which includes all eligible assets under the existing APP (find the ECB press release here and ECB´s decision in the point above). Under the PEPP, the Eurosystem central banks are entitled to purchase eligible marketable debt securities, corporate bonds, covered bonds and asset-backed securities with maturity between 70 days to 30 years (remaining maturity).
  • 12/03: ECB announced monetary policy measures including net purchase increase in APP of EUR 120 billion as well as measures allowing banks to fully use capital and liquidity buffers, enjoy temporary relief from Pillar 2 Guidance and liquidity coverage ratio and have more flexibility to fulfil (mandatory) Pillar 2 requirements. Regulators may also exercise more flexibility in respect of non-performing loans. Furthermore, the ECB announced the easing of conditions for targeted longer-term refinancing operations (TLTRO III), e.g. reducing the interest rates, increasing borrowing allowances and other key parameters of TLTRO III while adding additional longer-term refinancing operations (LTROs) to provide immediate liquidity support to banks and to accompany TLTRO III to bridge liquidity needs and support the normal functioning of the euro money market until the settlement of the fourth TLTRO III operation on 24 June 2020.
  • 03/03 In its letter, the ECB addressed contingency preparedness of European financial institutions in the context of COVID-19 and emphasized that institutions are expected to take appropriate actions for preparing and responding to a potential pandemic, such as a work-place preparedness, the capacity of existing IT structures to be maintained, risks of increased cyber-attacks and fraud arising out of higher reliance on remote banking services and ensuring services continuity and others.

EBA

  • 25/05: EBA released its thematic note with a preliminary analysis of the impact of COVID-19 on EU banks. The note states that although banks must face unprecedented pressure, they entered the crisis more capitalised and with better liquidity compared to previous crises. It is expected, however, that COVID-19 will have an adverse effect on asset quality (e.g. increase in non-performing loans) and that it will continue to put banks´ operational resilience under pressure.

  • 04/05: See ESMA 04/05 above and the ESAs joint draft RTSs.
  • 04/05: EBA launched an additional EU-wide transparency exercise to provide market participants with updated information on the financial conditions of EU banks as of 31 December 2019. EBA deems continuous information on banks’ exposures and asset quality crucial, particularly in moments of increased uncertainty brought on by the COVID-19 pandemic.
  • 04/05: EBA published the final draft Implementing Technical Standards (ITS) on specific reporting requirements for market risk (as announced on 22/04, see below) introducing the first elements of the Fundamental Review of the Trading Book (FRTB) into the EU prudential framework employing a reporting requirement. This reporting requirement will consist of two templates:
    • a threshold template providing insights into the size of institutions’ trading books and the volume of their business subject to market risk; and
    • a summary template, reflecting the own funds requirements under the alternative standardised approach for market risk (MKR-ASA).
      The reporting requirements are expected to apply from September 2021.
  • 22/04: Further clarity provided by EBA on:

    • How additional flexibility and relief can be implemented by modifying the 2020 Supervisory Review and Evaluation Process (SREP, measures the risk of each bank) to reflect the specific situation caused by the COVID pandemic. The 2020 SREP will concentrate on the recovery planning (e.g. operational relief for institutions), digital operational resilience and securitisation;
    • The application of the prudential framework on targeted aspects in the area of market risk in the COVID-19 outbreak, especially by addressing the i) need for prudent valuation (mitigation of the increase in aggregated amounts of additional valuation adjustments under the CRR); ii) postponement of the FRTB-SA reporting requirements under the CRR2; iii) postponement of the implementation of phase V and VI of the Joint ESAs RTS on non-cleared OTC derivatives, and iv) back-testing breaches on IMA models (increase in the Value-at-Risk metrics and multiplication factors).
  • 14/04: Ahead of the Corona crisis, the EBA risk dashboard as of Q4 2019 shows that the strong capital ratios and asset quality of the EU banking sector despite the ever-decreasing return on equity of the EU banks.
  • 02/04: Guidelines designed to clarify (among others) whether a moratorium measure (private or public) triggers re-classification of exposures as forborne. Criteria include (i) moratorium was passed in response to the COVID19 pandemic, (ii) measure is broadly applied by institutions in that jurisdiction, (iii) measure is available to a broad range of obligors, (iv) the moratorium offers same measures to classes of obligors, (v) the measure only affects the schedule of payments (e.g. no change in the interest rate beyond usual changes of benchmark rates) and (vi) the moratorium does not apply to new loans granted after the entry into force of the measure (the use of existing credit lines or renewal of revolving loans is not considered a new loan). The institutions are required to continue to assess the ability to pay by an obligor during and after the moratorium.
  • 31/03: EBA issued:
    • Statement on actions to mitigate financial crime risks in the COVID-19 pandemic by the competent authorities by planning the supervisory activities in an effective and pragmatic and risk-sensitive way (e.g. postponing of non-essential inspections, virtual meetings, the extension of submission dates, etc.);
    • Statement on supervisory reporting and Pillar 3 disclosures in light of COVID-19 stating that institutions should be allowed up to one additional month for submitting the required data (not applicable to certain ratios, metrics and in the case of resolution planning reporting) while prioritising COVID-19 relevant data. Moreover, EBA decided to cancel the QIS exercise based on June 2020 data and it urges the competent authorities to be flexible re the Pillar 3 disclosures.
    • Statement urging restraint in distribution of dividends, share-buybacks and remuneration policies to maintain sufficient capitalisation and to ensure continuous financing to the economy.
  • 25/03: EBA provides clarity to banks and consumers on the application of the prudential framework in light of COVID-19 measures:
    • Statement on consumer and payment issues in light of COVID19, where the EBA called on the financial institution to (a) act in the interest of the consumer with regards to any temporary measures, (b) these measures should comply with the EU law, (c) exercise restraint when imposing new and additional charges and when cross-selling products to consumers, (d) reconsider measures leading to an automatic decrease in credit ratings, and more.
    • Statement on the application of the prudential framework regarding Default, Forbearance and IFRS9 in light of COVID-19 measures addressing:
      • (i) the classification of loans in default – (a) defaults do not have to happen until 90 days past due on material credit obligation, (b) providing time to restructure the loans where necessary, loans can be renegotiated in a way that the financial position of the lender does not diminish, (c) only material amounts past due lead to default, (d) public and private moratoria permitting suspension or delays in payments should evade the 90 days past due criterion as the delays are counted based on the modified schedule of payments, (e) the institutions should focus on initial assessment and to exposures after the moratorium; (ii) the identification of forborne exposures - the offering and acceptance of terms set out in general moratoria would not necessarily lead to a reclassification of any loan under the definition of forbearance, as either performing or non-performing forborne (not automatically); and (iii) the accounting treatment under IFRS9 – coordinated with ESMA´s 25/03 public statement (see above).
  • 12/03: EBA postpones EU-wide stress test to 2021 to allow banks to prioritise operational continuity and will carry out an additional EU-wide transparency exercise for 2020 instead. Banks also expected to follow a prudent dividend policy.

EIB Group

  • 15/05: EIB approved EUR 3.4 billion of new financing to support European companies most affected by the COVID-19 pandemic and priority public health projects along with financial support for corporate research and development investment
  • 16/04: EIB Group established a new EUR 25 billion fund to guarantee EUR 200 billion of loans to businesses by using the Enhanced Conditions Credit Line of EMS. The aid will focus mainly on SMEs using the existing Partnership Platform for Funds (PPF) structure and the network of EIB´s existing partners to distribute the funds.
  • 08/04: The EC has launched the ESCALAR program, which will provide up to EUR 300 million aiming to support venture capital and private equity funds to support promising companies through the EIF using EFSI resources (see 06/04 below). Financial intermediaries interested in receiving the ESCALAR investment from the EIF should apply by 30 June 2020. The funds are destined for SMEs, small mid-caps, social enterprises and social sector organisations.
  • 06/04: The EC decided to unlock EUR 1 billion from the EFSI to the EIF to serve as a guarantee allowing the EIF to issue special guarantees to incentivise banks and others lenders to support liquidity on the EU market for SMEs and small mid-caps.
  • 03/04: The BoD of EIB Group proposed EUR 25 billion pan-European guarantee fund (see 24/03 below). The Board also approved a multi-beneficiary intermediated loan (MBIL) of EUR 5 billion to mobilise financing for SMEs and Midcaps in the coming weeks to up to EUR 40 billion.
  • 20/03: Notice to financial intermediaries in response to COVID-19 – short-term measures informing about EUR 1 billion from the European Fund for Strategic Investments (EFSI) to increase existing guarantee facilities managed by EIF, InnovFin SME Guarantee and COSME Loan Guarantee Facility, and about certain measures to be taken to make the distribution of funds more efficient (see also 06/04 above).
  • 16/03: Announcement of mobilisation of up to EUR 40 billion to fight crises caused by COVID-19 by providing loans to bridge credit holidays and other measures designed to alleviate liquidity and working capital constraints. Out of EUR 40 billion,
    • EUR 20 billion will go to guarantee schemes to banks based on existing programmes for immediate deployment;
    • EUR 10 billion to liquidity lines to banks to ensure additional working capital support for SMEs and mid-caps; and
    • EUR 10 billion to asset-backed securities (ABS) purchasing programmes to allow banks to transfer risk on portfolios of SME loans.

The EIB Group calls on the Member States to set up a further guarantee for SME and mid-cap support from EIB Group and national promotional banks by the establishment of a substantial and scalable guarantee system.

ESRB

  • 14/05: The General Board of the ESRB introduced the first set of actions to address the impact of the COVID-19 pandemic on the financial system from a macroprudential perspective. These actions entail five priority areas:
    • implications for the financial system of guarantee schemes and other fiscal measures to protect the real economy - the ESRB encourages cooperation and information exchange between the relevant national fiscal and macroprudential authorities;
    • market illiquidity and implications for asset managers and insurers – ESRB adopted a Recommendation to the ESMA (see also ESMA 14/05 above) to coordinate with the NCAs in undertaking a focused piece of supervisory engagement with investment funds that have significant exposure to corporate debt and real estate assets and emphasised timely use of appropriate liquidity management tools;
    • impact of large-scale downgrades of corporate bonds on markets and entities across the financial system – ESRB decided to coordinate a top-down analysis, with the ESAs and the ECB (for more details see ESRB´s note);
    • system-wide restraints on dividend payments, share buybacks and other pay-outs with the ESRB supporting the actions taken so far by member countries and institutions at the European level and stressing the value of applying pay-out restrictions in times of crisis;
    • liquidity risks arising from margin calls – ESRB stressed the importance of (i) mitigating procyclicality that could be linked to the provision of clearing services and to the exchange of margins in bilaterally cleared markets; (ii) enhancing central counterparty stress test scenarios for the assessment of liquidity needs; and (iii) limiting excessive liquidity constraints related to margin collection.

 

This article is part of our coronavirus-focused legal updates – visit our coronavirus info corner to get more info!