ESAs call for vigilance in the face of mounting financial risks

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) issued their Spring 2023 joint risk report.
The report underlines the uncertain economic outlook, elevated inflation and a sensitive European financial system. The ESAs emphasize the multiple challenges for national supervisors, financial institutions and market participants that arise from the Ukrainian conflict.
In this context, the following eight points are highlighted:
+ Preparation for potential asset quality deterioration and monitor loan loss provisioning.
+ Consideration of broader impacts of policy rate increases and sudden risk premia rises in liquidity risk management.
+ Monitoring of liquidity risks from leveraged funds and interest rate derivatives.
+ Monitoring inflation risk impacts on asset valuation and quality, and inform investors of effects on real returns.
+ Pursuing prudent capital distribution policies for long-term financial resilience.
+ Maintaining strong regulatory frameworks, implementing Basel III and avoiding deviations from EIOPA’s Solvency II advice.
+ Enhancing risk management and disclosure of ESG risks.
+ Allocating adequate resources and skills to ensure security of information and communication technology infrastructures and risk management.