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Welcome to our Friends weekly e-mail.
Highlights of my week: The ECB’s Financial Stability Review found that markets remain exposed to surprises…while the FSB looked at the risks from short term funding markets. Commissioner McGuiness launch a consultation on the regulation of Non Bank Financial Intermediaries (NBFI) as they are now significantly larger than the banking system and EBA Chair Campa touched on the same topic at the BCBS. ESMA launched its package of 20 recommendations for an effective CMU and EURACTIV underlined that the topic is likely to take ‘centre stage’ in the next legislative cycle. ISDA said that proposed US capital rules on central clearing could require a sharp increase in capital and crimp US banks’ activities. That would spill over to Europe so CEPS paper on finding the right balance in EU derivatives clearing was timely. A SUERF paper found that there was ‘limited evidence’ that banks had actually reduced financing to non-green activities – ‘business as usual’! The EU enacted its new AI rules – thereby setting the global benchmark for companies doing any business with the EU. The UK announced a General Election surprisingly early despite the polls pointing to a historic defeat - with Tory MPs falling to possibly a quarter of their current tally. Will that lead to a rapprochement with the EU? Don’t hold your breath! But there could be an end to deliberate divergence as new research now puts the City’s contribution at 12% of total taxes – not a golden egg to be recklessly broken! Graham Bishop Articles from 17-23 May 2024
Policy impacting Finance Financial stability vulnerabilities have eased but the outlook remains fragile, ECB finds : May 2024 Financial Stability Review: Euro area financial stability conditions have improved as recession risks decline, but markets remain exposed to possible adverse macro-financial and geopolitical surprises View Article
FSB examines vulnerabilities in short-term funding markets : FSB analysis finds that commercial paper (CP) and negotiable certificates of deposit (CD) markets generally function well in normal times but are susceptible to illiquidity in times of stress. View ArticleFSB's Knott: A solid foundation for a resilient structure : These events have been further reminders of one simple fact: there remain key vulnerabilities within NBFI. The basic regulatory structure is not strong enough. In recent years, the FSB and the international standard-setting bodies have been working hard to address these NBFI vulnerabilities. View Article
CEPR's Giavazzi/Goretti :Surprisingly, Italy’s Resilience and Recovery Facility plan is working : Doubts have been expressed about the ability of the EU’s RRF to improve the unimpressive record of earlier EU initiatives. This column argues that in Italy, the instrument has been effective in rekindling long-delayed reforms in the judiciary, public procurement, and the water and energy sectors. View Article
EPC's Kuiper: Who Will Succeed Rutte? Implications for Dutch Influence in the EU : After 13 years of governments led by liberal Prime Minister Mark Rutte, the country was seen as punching above its weight when it came to influencing Brussels. With uncertainty looming over the next government, the Netherlands expects to lose power after the European elections. View ArticleFondation Robert Schuman's Sales: Europe's Decline, a German story? : Since the euro is essentially a political project, the institutional rules that would have reduced current account divergences within the monetary union have not been implemented, as if building up trade surpluses were a virtue in itself. View Article
Bulgarian National Bank Governor Radev: Bulgaria in the eurozone, when? : The short answer to this question is: As soon as possible. Why? Because delaying our full integration into the core of the EU, such as the eurozone, has its price, and it is constantly increasing. View Article
ECIPE: Keeping Up with the US: Why Europe’s Productivity Is Falling Behind : While short-term factors like the strong US fiscal expansion have widened the gap in nominal GDP growth in recent years, the fact is that Europe has trailed the US economic development for several decades and the root of the problem lies in deeper structural issues within the European economy. View Article
Bruegel's Pench: Three risks that must be addressed for new European Union fiscal rules to succeed : The reform, completed in April 2024, left implementation unaddressed, or at least open to very different potential outcomes View ArticleParliament briefing: A new operational framework for the European Central Bank : The ECB has effectively made a small adjustment to the width of the corridor between two policy rates - to ll be implemented September 2024. In addition, two new instruments will be added to the ECB monetary policy toolbox: a structural portfolio of assets, and long-term refinancing operations. View Article
Project Syndicate's Skidelsky: The Myth of Central-Bank Independence : The BoE’s failure to respond effectively to the worst inflation in four decades underscores the need to abandon the outdated notion that fiscal and monetary policy can be kept separate. If governments are to be held responsible for investment and employment, they should also control interest rates. View Article
Banking Union CPMI: Regional payment infrastructure integration: insights for interlinking fast payment systems : Historically, efforts at payment infrastructure integration have been part of a broader regional economic strategy and benefited from strong support from the public sector. This has resulted in regional payment arrangements with an anchor in economic groupings. View Article
EBA's Campa at BCBS-FSI high-level meeting for European Supervisors - Expanding the boundaries of supervision in the EU: New financial institutions have acquired an increasingly important role in financial intermediation, establishing themselves as an alternative to bank financing..the pervasive use of new technologies by financial entities, the increasing digitalisation of financial services.... View Article
Capital Markets Union Commissioner McGuinness at DG FISMA's technical workshop on macroprudential policies for Non-Bank Financial Intermediation : "with this consultation, we are taking a complete, an overall view of NBFI across all of its different parts.We want to assess macroprudential policies and supervision beyond banks in a cross-cutting way. View Article
Commission launches consultation on macroprudential policies for Non-Bank Financial Intermediation : NBFI comprises very diverse financial sectors including regulated entities (e.g. asset management companies and investment funds, non-bank investment firms, pension funds, insurance companies) and unregulated entities (e.g. family offices and supply chain finance companies). View Article
ESMA makes recommendations for more effective and attractive capital markets in the EU : The Paper includes 20 recommendations to strengthen EU capital markets and address the needs of European citizens and businesses. ESMA’s recommendations for a well-functioning capital market focus on three dimensions: citizens, companies and the EU regulatory and supervisory framework. View Article
EURACTIV's Moller-Nielsen/Brunetti: CMU, competitiveness to take centre stage in next economic policy cycle : Eurozone finance ministers demanded the upcoming European Commission revive the bloc’s decade-old CMU mainly by reducing barriers for institutional and retail investors, listing, real-time access to market data, and securitisation investment.Similar requests were made by EU leaders in April... View Article
EuropeanIssuers and FESE Release the Joint Position Paper “Unleashing Retail Investor Participation in the Corporate Bond Market” : Increasing retail investors’ access to capital markets is vital if the EU aims to secure a sustainable economy, digital adoption, and shared prosperity for the future. View Article
CEPS' Thomadakis/Zebregs: The future of derivatives clearing – finding the right balance between efficiency and resilience? : In this policy brief, we focus on three pressing issues that require attention: clearing access and capital rules, portability and clearing models, as well as liquidity and collateral optimisation. View Article
MiFIR review: ESMA consults on three new technical standards : The European Securities and Markets Authority (ESMA) is launching today a public consultation on non-equity trade transparency, reasonable commercial basis (RCB) and reference data under the Markets in Financial Instruments Regulation (MiFIR) review. View Article
ISDA Disruption Response – IQ May 2024: impact of proposed US capital rules on central clearing : ... central clearing of derivatives is widely acclaimed by policymakers for reducing risk and increasing the resilience of financial markets. View Article
Environmental, Social, Governance (ESG) CEPR's Sastry/Verner/Marques-Ibanez : Business as usual: Bank net zero commitments, lending, and engagement : This column finds limited evidence to suggest that net zero commitments lead to significant reductions in financed emissions or substantial increases in financing for sustainable activities. It raises questions about the effectiveness of voluntary private-sector initiatives ... View Article
GRI: Making the Corporate Sustainability Reporting Directive accessible for all : New ‘CSRD Essentials’ series explains the EU's mandatory sustainability reporting requirements. A new publication addresses key themes on the implementation of the Corporate Sustainability Reporting Directive (CSRD), the legislation adopted by the EU in December 2022 and now in effect. View Article
UNEP FI: Climate Mitigation Journey : The Climate Mitigation Journey (CMJ) is a manual for banks outlining the business capabilities they need to build and iterate for years to come as they are looking to align themselves with the Paris goal of 1.5°C global warming and net zero, as part of their commitments under the PRB and/or NZBA. View Article
Bankenverband's Neuman/Schwantes: 3 questions, 3 answers: ESG risk management : Nowadays, sustainability risks in the three areas of environmental, social and governance – or ESG for short – have become an integral part of banks’ risk management. After all, one of the main tasks of a bank is to quantify and manage risk. And ESG risks are no exception. View Article
Invest for Better Climate EU: Assessing Retail Investor Sustainability Knowledge and Preferences EU : Invest for Better Climate is an educational and advocacy campaign, aimed at giving individual retail investors a better understanding of the impact on climate they have through their investments. View Article
Protecting Customers ACCA: 59% of SMEs and their advisers globally believe that standing up to bribery and corruption will result in lost business opportunities : New research from ACCA reveals extent of concern over impact of bribery and corruption on SMEs View Article
Fin Tech Regulation Cybersecurity: Council approves conclusions for a more cyber secure and resilient Union : The importance of cybersecurity can hardly be underestimated. In the last years, cyber security threats have significantly increased in level, complexity, and scale. This has gone along with a significant increase in global geopolitical tensions. View Article
EU digital policy: Council identifies main priorities for the next legislative cycle : To improve EU’s competitiveness on the global stage, we should foster a common European approach to innovative digital technologies striking the right balance between innovation, regulatory burden, and protection of the Union’s economic security. View ArticleReuters: Europe sets benchmark for rest of the world with landmark AI laws : The European Union's AI Act is more comprehensive than the United States' light-touch voluntary compliance approach while China's approach aims to maintain social stability and state control. View Article
SUERF's Goel: The search for tokenised money: how about reserve-backed tokens? : Exactly what form the money of the future will take remains an open question. CBDCs, tokenised deposits, and stablecoins are potential candidates. Tokens that are entirely and exclusively backed by central bank reserves – ie reserve-backed tokens (RBTs) – also offer a credible solution. View Article
finextra:Pursuit of faster settlement times via DLT will hit market quality : The WFE says that inherent latency in DLT settlement introduces uncertainty into the process due to factors such as overall mining capacity, which affects block validation speed. View Article
BCBS: Digitalisation of finance : The report considers both the benefits and risks of new technologies and the emergence of new technologically enabled suppliers on the provision of banking services. It identifies eight implications for banks and supervisors.. View Article
Brexit and the City HM Treasury's Afolami: The Future of UK Finance : Over the last 3 years, my predecessors at HM Treasury and I, alongside the Chancellor and Prime Minister, have embarked on the most comprehensive set of reforms to financial services in a generation. View Article
City of London Corporation: The Total Tax Contribution of UK-based financial and related professional services : Record £110.2bn in taxes contributed by financial and related professional services – enough to fund the government’s annual education budget; The industry’s Total Tax Contribution represented 12.3% of all tax receipts in 2023 View Article
City AM's Conchie:Is the London Stock Exchange really the world’s bargain bucket? : “There has been another narrative that valuations are higher in the US,” she said. “On an absolute multiple based on the composition of indices that may be the case, but it’s also a meaningless number for any individual company.” View Article
POLITICO: Getting flirty! Are the UK and EU falling into bed with each other again? : Financial regulation as pillow talk may not be everyone’s cup of tea — but the topic could lead to a rekindling of a relationship that for several years had soured. View Article
Reuters's Jones: City of London calls for financial regulators to find a growth 'mindset' : View Article
Bank of England's Pritchard: Aiming for calm seas in our market reforms : We are committed to making sure that regulation supports the UK’s position in global wholesale markets as well as facilitating the UK’s economic growth and international competitiveness; Our outcomes based approach will continue to support innovation, helping our markets remain efficient. View Article
Brexit FT Opinion: An end to Britain’s uncertainty and drift : The election will turn on which party can secure growth and competitiveness View Article
Federal Trust video: Stevens/Donnelly - Will Labour unpick Brexit? : They argue that political pragmatism and economic reality may lead over the next five years to a transformation of Keir Starmer’s current cautious approach towards the EU. View Article
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