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2016 European Banking Authority Annual Report Summary

Core Content

The 2016 Annual Report of the European Banking Authority (EBA) outlines the key achievements and activities of the EBA in promoting regulatory consistency, enhancing supervisory practices, and supporting financial stability across the European Union. The report highlights the progress made in completing the Single Rulebook for banking, advancing resolution policy, and addressing emerging risks and financial innovations.

Main Achievements

1. Single Rulebook Development and Maintenance

• The Single Rulebook for the EU banking sector was largely completed in 2016.
• The EBA actively supported the finalisation of the Basel III package and its implementation in the EU.
• It reflected on the effects of post-financial crisis reforms, focusing on bank structures, business models, and risk-taking.
• The EBA enhanced its monitoring of the Single Rulebook in areas such as own funds, remuneration practices, and securitisations.

2. Key Deliverables

• Leverage Ratio (LR): In August 2016, the EBA reported on the LR, noting that a 3% requirement would have a relatively moderate impact on credit institutions, leading to more stable institutions.
• Core Funding Ratio (CFR): In September 2016, the EBA published a report on the CFR, highlighting that it lacks correlation with the NSFR and cannot fully assess funding gaps.
• Internal Models Review: The EBA issued a roadmap for the implementation of the regulatory review of internal models, divided into four phases, with the final phase expected by the end of 2017.
• Regulatory Technical Standards (RTS): The EBA published final guidelines on the communication between competent authorities and auditors, effective from 31 March 2017.
• Securitisation and Resolution: The EBA contributed to the Capital Market Union reform by finalising guidelines on implicit support for securitisation and publishing a report on harmonising the covered bond framework.
• Deposit Guarantee Schemes (DGSs): The EBA published guidelines on cooperation agreements and stress tests for DGSs, improving resilience and cross-border compensation access.

3. Resolution Policy Development

• The EBA supported the development of resolution policy, including the MREL (Minimum Requirement for Own Funds and Eligible Liabilities) framework.
• It published a report on the target level of national resolution-financing arrangements, recommending the use of total liabilities as a reference point.
• The EBA also facilitated recovery planning discussions and published a comparative report on governance arrangements and recovery indicators for large European banking groups.

4. Supervisory Convergence and Implementation

• The EBA continued to monitor the practical application of the Single Rulebook by competent authorities (CAs), focusing on consistency in outcomes.
• It introduced the Pillar 2 Capital Guidance (P2G) in July 2016 to assist with the EU-wide stress test.
• The EBA published guidelines on ICAAP and ILAAP to ensure consistent supervisory assessment of internal risk models.
• It developed draft guidelines on ICT risk and updated guidelines on IRRBB (Interest Rate Risk in the Banking Book) in April 2016.

5. Risk Monitoring and Assessment

• The EBA produced a regular Risk Assessment Report (RAR) and a Risk Dashboard to monitor key risks and vulnerabilities in the banking sector.
• It conducted an EU-wide transparency exercise, involving 131 banks, to promote market discipline and consistent disclosures.
• The EBA also published a report on non-performing loans (NPLs), highlighting the high level of NPLs and the need for a coordinated EU response.
• A stress test exercise was launched in February 2016, assessing 51 banks from 15 EU and EEA countries, with results released in July.

6. Consumer Protection and Financial Innovation

• The EBA focused on reducing consumer detriment by addressing poor remuneration practices, leading to the publication of Final Guidelines on remuneration policies in September 2016.
• It contributed to the development of technical standards and guidelines under the Payment Accounts Directive (PAD) and the implementation of PSD2.
• The EBA also addressed financial innovation by publishing a Discussion Paper on the use of consumer data and an opinion on virtual currencies under the 4AMLD directive.

7. International Engagement

• The EBA actively participated in international forums such as the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB).
• It worked on regulatory consolidation, bail-in execution, and cross-border resolution.
• The EBA engaged in discussions with non-EU jurisdictions to develop cooperation arrangements and contributed to the enhancement of central counterparty (CCP) resilience.

8. Cross-Sectoral Coordination

• The Joint Committee of the ESAs (EBA, ESMA, EIOPA) focused on consumer protection and cross-sectoral risk assessments.
• It produced two biannual reports identifying key risks and vulnerabilities in the EU financial system.
• The Joint Committee also celebrated its fifth anniversary with the publication of a booklet on European supervisory convergence.

Key Information

• The EBA published a number of reports and guidelines throughout 2016 to enhance regulatory consistency and financial stability.
• It launched a public consultation on the implementation of technical standards for MREL.
• The EBA's Risk Dashboard and EU-wide transparency exercise were key tools in monitoring market developments and promoting transparency.
• The EBA expanded its database to include over 300 risk indicators, supporting its mandate to assess market risks and vulnerabilities.
• The EBA continued to support the implementation of the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulation (CRR).

Conclusion

The 2016 Annual Report of the EBA reflects a comprehensive effort to strengthen the EU banking sector through regulatory harmonisation, risk monitoring, and consumer protection. It highlights the EBA's active role in both domestic and international regulatory developments, contributing to the stability and resilience of the European financial system.