© Reuters. FILE PHOTO: A view exhibits the brand of the European Central Financial institution (ECB) outdoors its headquarters in Frankfurt, Germany March 16, 2023. REUTERS/Heiko Becker
MILAN (Reuters) -The European Central Financial institution is contemplating whether or not necessities tailor-made for particular person lenders might assist handle the dangers arising for these holding massive quantities of uninsured deposits, a doc confirmed.
A paper ECB supervisors ready for this week’s assembly of euro zone finance ministers mentioned current banking turmoil confirmed “elevated consideration must be paid to the liquidity and funding threat outlook of the sector as financial coverage shifts to a brand new regime.”
The ECB mentioned it was actively working with different international supervisors to know which classes might be learnt.
Deposit flights have induced the failure of some U.S. regional banks and compelled Switzerland to orchestrate Credit score Suisse’s rescue by rival UBS.
“It might be useful to discover how components comparable to excessive deposit base focus and a predominant reliance on uninsured deposits might be handled within the Pillar 2 framework,” the ECB mentioned.
Most European Union nations have some type of nationwide insurance coverage that ensures deposits as much as 100,000 euros ($110,080).
The Pillar 2 framework is a supervisory course of aimed toward making certain every lender has satisfactory capital and liquid asset holdings primarily based on its particular threat profile.
The ECB can impose extra capital and liquidity necessities if it sees match. It might use liquidity necessities to handle liquidity dangers.
The Pillar 2 liquidity framework focuses on liquidity dangers that aren’t totally addressed by Pillar 1 necessities: the Liquidity Protection Ratio (LCR) and the Web Steady Funding Ratio (NSFR).
The LCR forces banks to carry high-quality belongings (HQLA) they’ll convert into money, both by way of a sale or by pledging them as collateral, to cowl money outflows over a 30-day interval.
Banks principally maintain authorities bonds as HQLA, however rising rates of interest have curtailed the worth of those holdings, so for instance Silicon Valley Financial institution suffered a serious capital hit when it bought U.S. Treasuries to offset deposit flights.
“Areas of focus embody some components of the calibration of the LCR and the extent to which belongings held at amortised value, which can be troublesome to promote with out struggling losses when liquidity wants come up, can qualify as HQLA,” the paper mentioned.
($1 = 0.9084 euros)
