John Fell, Tuomas Peltonen, Richard Portes, 02 June 2021

At the end of 2019 the European Systemic Risk Board General Board mandated a Task Force on Low Interest Rates to revisit the ESRB’s 2016 report on “Macroprudential policy issues arising from low interest rates and structural changes in the EU financial system”, assess subsequent developments, compare these to the risks identified in the report, and assess whether new sources of systemic risk have emerged. Furthermore, the Task Force was mandated to review progress in relation to the policy proposals in the earlier report, as well as propose possible new policy actions aimed at mitigating potential systemic risks. As this column discusses, the new report finds that the low interest rate environment continues to pose risks for financial stability. For instance, since 2016, search-for-yield behaviour has intensified in the banking and investment fund sectors, and some business models are proving unsustainable. To address these sources of risk and vulnerabilities, the report puts forward a wide range of policy options.

Thorsten Beck, Francesco Mazzaferro, Richard Portes, Jean Quin, Christian Schett, 23 June 2020

On 27 May, the ESRB General Board adopted a wide-ranging recommendation to suspend pay-outs across different segments of the European financial system until the end of 2020. This column discusses why arguments for such restrictions weigh stronger than ownership and management rights during these unprecedented times. It provides a rationale for why the recommendation is a wide-ranging one, including banks, investment firms, insurance companies and CCPs and referring to all voluntary pay-outs, including dividends, share buy-backs and variable remuneration to material risk-takers.

Philip Lane, Sam Langfield, 28 February 2018

The euro area’s macro-financial framework is incomplete and fragile. This column highlights how a market for sovereign bond-backed securities could help to enhance financial stability by providing automatic stabilisation. Drawing on a recent feasibility study published by a High-Level Task Force of the European Systemic Risk Board, it outlines how to pave the way for market development by removing regulatory obstacles.

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