Bucharest, 10 November 2022 – The current global geopolitical and macroeconomic context influences the stability of European financial markets, which is why supervisors must carefully monitor risks and use their powers to intervene where necessary.
The European Systemic Risk Board (ESRB) drew attention, in a warning issued this autumn, to the fact that it had identified certain risks to the financial stability of the European Union and that they may materialise simultaneously, interacting with each other and amplifying each other’s impact. This is despite the fact that the Union’s financial system has so far proved resilient, despite increasing geopolitical and economic uncertainties.
ESRB experts point out that geopolitical developments are having an impact on energy prices and energy supply, implying a further increase in balance sheet pressures for companies and households. In addition, higher-than-expected inflation is tightening financial conditions, which could amplify stress in the financial sector.
The warning issued by the ESRB states that there is a need to address vulnerabilities and increase the resilience of non-bank financial institutions and market funding. The European Systemic Risk Board notes that authorities may need to use their supervisory powers to mitigate the consequences of materialising risks to financial stability and to prevent market failures. The relevant authorities should also continue to closely monitor risks and intensify supervisory dialogue with supervised non-bank financial institutions where necessary.
”In a difficult context, mirrored in economic developments both globally and locally, we must act prudently to maintain the financial stability of the markets we supervise. We must also be firm in controlling and enforcing compliance with the laws, for a fair and sustainable development of these markets”, said Mr. Nicu Marcu, President of the Financial Supervisory Authority.
Non-bank financial institutions can further strengthen their resilience by ensuring that their risk management practices adequately reflect the deteriorating risk environment and comply with the guidance and expectations of supervisory authorities. ”For example, for investment funds, this means closely monitoring and countering potential excessive liquidity gaps or excessive leverage; for central counterparties (CCPs), clearing members and their clients, it means monitoring derivatives exposures, as well as countering concentration risk and pro-cyclicality in margin practices along the chain of CCPs, clearing members and their clients; for insurers, this means paying increased attention to market and liquidity risks, which could materialize in a scenario of increased market volatility and high uncertainties,” the ESRB document reads.
About the Financial Supervisory Authority
The Financial Supervisory Authority is the national authority, established in 2013 by GEO 93/2012 approved by Law 113/2013, for the regulation and supervision of the insurance, private pension and capital markets. The FSA contributes to strengthening the integrated framework for the functioning of the three sectors, which together account for more than 10 million participants. More information can be found at www.asfromania.ro.