May 26, 2020 |
• Pandemic greatly amplified existing vulnerabilities of the financial sector, corporates and sovereigns
• Policy responses to pandemic essential to preserve financial stability
• Euro area banks, although now better capitalised, likely to face significant losses and further pressure on profitability
Despite the immense social and economic disruption in the wake of the coronavirus (COVID-19) pandemic, decisive policy responses have helped to prevent a seizing-up of the financial system. However, even as infection rates fall in many countries, the impact on the economy and markets has unearthed and increased existing vulnerabilities for euro area financial stability, according to the May 2020 Financial Stability Review (FSR) of the European Central Bank (ECB). Financial stability risks could arise as these vulnerabilities, identified in earlier issues, interact with the pandemic. These include richly valued asset prices, fragile investment funds, the sustainability of sovereign and corporate debt, and weak bank profitability.
“The pandemic has caused one of the sharpest economic contractions in recent history, but wide-ranging policy measures have averted a financial meltdown”, ECB Vice-President Luis de Guindos said. “However, the repercussions of the pandemic on bank profitability prospects and medium-term public finances will need to be addressed so that our financial system can continue to support the economic recovery”, he added.
As the virus spread globally in late February, financial markets saw dramatic falls in asset prices, sharp increases in volatility, illiquidity in some core markets and a general tightening of financial conditions. Some market reactions were amplified by the need for investment funds to sell assets to meet large outflows. Action by central banks globally, notably the ECB’s announcements of large-scale asset purchases (under the public sector purchase programme and the pandemic emergency purchase programme), helped stabilise conditions in markets.
All euro area countries announced fiscal packages to cushion the economic ramifications of the crisis for households and companies. These fiscal measures should support the economic recovery. In particular, they could help the many corporates which are now facing cash-flow strains. Some riskier firms, which had levered up in recent years, are likely to face additional challenges. Looking ahead, the associated increase in public debt levels could also trigger a reassessment of sovereign risk by market participants and reignite pressures on more vulnerable sovereigns.
Although supported by a significant increase in capital and liquidity since the global financial crisis, bank valuations fell to record lows and funding costs increased. This reflected both the deterioration in economic prospects and considerably higher uncertainty about the outlook for euro area banks’ profits and asset quality. Mirroring changes in corporate earnings expectations and weaker income generation on new business, the return on equity for euro area banks in 2020 is now expected to be significantly lower than it was before the pandemic.
Banks should benefit from the action of prudential authorities across the euro area to ease capital requirements and grant banks more operational flexibility to maintain the flow of credit to the economy. In addition, ECB Banking Supervision recommended that banks temporarily refrain from paying dividends or buying back shares, strengthening their capacity to absorb losses and avoid deleveraging. These capital measures are expected to remain in place until the economic recovery is well established.
This issue of the FSR also contains a number of boxes and special features touching on aspects of both recent developments and other important vulnerabilities, including on the potential impact of government loan guarantee schemes (Box 4), bank dividend payout suspensions (Box 5), bank and non-bank interlinkages (Box 6), and the macroeconomic impact of financial policy measures (Box 8).
Compliments of the European Central Bank.

May 26, 2020 |
Main results
Ministers held an exchange of views on a comprehensive approach to the COVID-19 pandemic, including the de-escalation of containment measures and economic recovery.
They were invited to share their experiences and provide comments on how to gradually lift restrictions related to COVID-19 and restart the economy and social activities, taking into account the health considerations.
Ministers outlined their national measures and timelines, stressing the importance of continued cooperation between member states, as well as ensuring a proportionate and non-discriminatory approach when lifting the restrictions and opening the borders.
The European Union must continue with a comprehensive and coordinated approach to the de-escalation of containment measures. We should carefully strike a balance between resuming economic and social activities and protecting the health of our citizens. We should jointly create the conditions for a speedy exit from the crisis and the economic recovery of all member states. – Andreja Metelko-Zgombić, Croatian State Secretary for European Affairs
Ministers also provided their views on a comprehensive economic and social recovery of the EU. They outlined their expectations regarding adjustments to the next multiannual financial framework to take into account the new realities and as regards the planned recovery fund.
A number of key areas of action were mentioned in the discussion, such as strengthening the single market whilst ensuring a level playing field, supporting cohesion and convergence, green transition and digital transformation, and enhancing the EU’s strategic autonomy.
Several speakers pointed out that the Conference on the Future of Europe would be relevant for discussing with EU citizens and other stakeholders the challenges facing the EU in the medium and long term, including the lessons learned from the COVID-19 crisis. The presidency highlighted that its aim is to find an agreement on the Council’s position on the conference as soon as possible and to engage on this basis with the Commission and the European Parliament.
Under ‘any other business’, the Commission informed ministers about the state of play in the preparation of the first annual report on the rule of law in the EU, planned for September. It underlined that the report remains a priority for the Commission and that preparations are well on track despite the difficult circumstances. The aim is to ensure objectivity and an equal treatment of all member states.
Compliments of the European Council.

May 22, 2020 | Statement by HR/VP Josep Borrells
I regret the announcement by the United States to withdraw from the Open Skies Treaty. The Treaty on Open Skies is a key element of our arms-control architecture and serves as a vital confidence and security-building measure.
Since it came into force in 2002, this agreement has enabled to carry out more than 1.500 reconnaissance missions over the territories of all the signatory states.
The treaty provides transparency and predictability. It is an important contribution to European and global security and stability.
All State parties must continue to acknowledge this and ensure the full implementation of the Treaty. Withdrawing from a Treaty is not the solution to address difficulties in its implementation and compliance by another party. While continuing to urge Russia to return immediately to the full implementation of the Treaty, I call upon the United States to reconsider their decision.
The European Union will be examining the implications this decision may have for its own security.
Compliments of the European Union External Action.

Together with our members we are creating a Video series of first-hand accounts of the Pandemic’s impact, both personally & professionally.
We invite you to join us today for a first-hand look at the impact of the global shutdown following the Coronavirus (COVID-19) outbreak – Today we are featuring Celia Belline, CEO, CILcare a EACCNY member.The questions we asked our members for this series are:1) What are some challenges you, personally and your organization have faced?2) What are some of the most surprising (positive, innovative) responses/changes you have witnessed?3) How will this experience change us going forward, as a society and in terms of how we do business?

EACCNY has its finger on the pulse of how this worldwide pandemic is effecting companies and organizations on both sides of the Atlantic. EACC is where Americans & Europeans connect to do business.
Stay tuned for more on this series! We hope you enjoy these short vignettes our members and friends of the EACC created to share their experience.

May 20, 2020 |
The EU is adapting certain rules for different transport sectors to help companies and authorities cope in the extraordinary circumstances created by the coronavirus crisis. Today, the Council adopted temporary measures enabling the extension of the validity of certain certificates and licences in road, rail and waterborne transport, and relaxing the rules on charging ships for the use of port infrastructures.
Enabling the extension of the validity of licences and certificates will provide the flexibility and legal certainty needed to maintain our supply chains and ensure continued mobility by road, rail, sea and inland waterways, while safeguarding safety and security. The possibility of waiving port infrastructure charges will help mitigate the serious negative impact of the crisis on the shipping sector. – Oleg Butković, Croatian Minister for the Sea, Transport and Infrastructure, President of the Council
The regulation enabling the extension of the validity of certificates and licences will support those transport operators, individuals and national administrations that, owing to the coronavirus restrictions, are having difficulties fulfilling certain administrative formalities before the expiry of the relevant deadlines. This applies for instance to driving licences, roadworthiness tests for motor vehicles and boat-masters’ certificates.
Certain periodic checks in the road, rail, inland navigation and shipping sectors will also be postponed temporarily, as they may not be feasible in current circumstances.
The text takes into account the fact that, given the differences in the spread of the pandemic throughout Europe, some member states are able to continue to deliver specific licences or certificates, while others find it difficult or impossible to do so. However, even if a country continues to issue licences itself, it will need to accept licences originating in another member state which has used the possibility of extending their validity. This will help ensure the smooth functioning of the internal market and continued cross-border activities.
The amendment to the port services regulation will contribute to the financial sustainability of ship operators in the context of the pandemic by providing flexibility to the existing rule that requires member states to ensure that a port infrastructure charge is levied. The amendment will give ports the possibility to waive, suspend, reduce or defer the charges for port users due between 1 March 2020 and 31 October 2020.
The Council’s vote on the two regulations was taken using a written procedure, which was concluded today. The European Parliament voted on 15 May 2020.
Both legal acts will enter into force the day after they are published in the EU Official Journal, which is expected to take place next week.
The legislative process is still ongoing for the other two proposals in the transport emergency package presented by the Commission on 29 April 2020, which concern aviation and the fourth railway package.
• Regulation laying down specific and temporary measures in view of COVID-19 outbreak and concerning the validity of certain certificates, licences and authorisations and the postponement of certain periodic checks and training in certain areas of transport legislation – full text
• Regulation amending regulation 2017/352, so as to enable managing bodies or competent authorities to provide flexibility in respect of the levying of port infrastructure charges in the context of the COVID-19 outbreak – full text
• COVID-19 coronavirus outbreak and the EU’s response (background information)
• Travel and transportation during the coronavirus pandemic
Compliments of the European Council.

May 22, 2020 |
External communication
Communication in relation to the German Federal Constitutional Court ruling of 5 May 2020
On 5 May 2020 the ECB issued a press release indicating that the Governing Council had taken note of the judgement issued by the German Federal Constitutional Court earlier that day regarding the public sector purchase programme (PSPP), on which it had received a preliminary briefing by the President of the Deutsche Bundesbank and by the legal department of the ECB, and remained fully committed to doing everything necessary within its mandate to meet the ECB’s statutory objective of maintaining price stability.
Market operations
Guideline amending Guideline ECB/2014/31 on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral
On 7 May 2020 the Governing Council adopted Guideline ECB/2020/29 amending Guideline ECB/2014/31 on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral. This amending guideline implements the collateral easing measures decided by the Governing Council on 22 April 2020 in response to the coronavirus (COVID-19) pandemic. The guideline is available on the ECB’s website.
Ad hoc assessment of two new non-regulated markets
On 14 May 2020 the Governing Council decided to add the non-regulated Alternative Fixed-Income Market in Spain and the First North Market in Lithuania to the list of accepted non-regulated markets for assets eligible as collateral for Eurosystem monetary policy operations, following a positive assessment of their compliance with the criteria defined in the General Documentation. The complete list of accepted non-regulated markets is available on the ECB’s website.
Expansion of additional credit claim frameworks in response to the COVID-19 pandemic
On 15 May 2020 the Governing Council approved changes to the temporary additional credit claim (ACC) frameworks of six national central banks (NCBs), upon request of the respective NCBs. The proposed extensions primarily cover the acceptance of one new ACC framework and ACCs benefiting from the new guarantee schemes adopted in a number of jurisdictions in response to the COVID-19 pandemic, together with specific risk control frameworks to address deviations from the requirements applicable to guarantees under the General Documentation, as well as further changes that widen the scope of accepted assets and in-house credit assessment systems for some of the six NCBs. The ACC frameworks were introduced in 2011 to allow Eurosystem NCBs to temporarily accept as collateral certain credit claims that are not compliant with the eligibility rules and/or credit quality standards established in the General Documentation. The collateral easing package adopted by the Governing Council on 7 April 2020 introduced the possibility of expanding these frameworks further. The acceptance of these ACC frameworks is subject to prior approval by the Governing Council. More detailed information on the ACC frameworks is available on the ECB’s website.
Financial stability and supervision
Financial Stability Review May 2020
On 20 May 2020 the Governing Council authorised the publication of the “Financial Stability Review – May 2020”. This issue assesses how the financial system has functioned so far during the COVID-19 pandemic and considers the financial stability implications of its potential economic after-effects, taking into account the financial vulnerabilities identified before the pandemic, including those related to the functioning of financial markets, debt sustainability, bank profitability and the non-bank financial sector. The Review also sets out policy considerations for both the near term and the medium term with a view to promoting awareness of systemic risks among policymakers, the financial industry and the public at large. This issue also contains two special feature articles. The first is dedicated to trends in residential real estate lending standards and their implications for financial stability, and the second examines derivatives-related liquidity risk facing investment funds. The Review will be published on the ECB’s website on 26 May 2020.
Market infrastructure and payments
Identification of a new systemically important payment system
On 4 May 2020 the Governing Council adopted Decision ECB/2020/26 on the identification of MASTERCARD CLEARING MANAGEMENT SYSTEM as a systemically important payment system pursuant to Regulation (EU) No 795/2014 on oversight requirements for systemically important payment systems. This identification is the outcome of an exercise to verify that the operator fulfils a number of objective criteria that are set out in the Decision, which is available on the ECB’s website.
TARGET Annual Report 2019
On 14 May 2020 the Governing Council took note of the TARGET Annual Report 2019, which was subsequently published on the ECB’s website. The report provides information on TARGET2 traffic, its performance and the main developments in 2019. It also includes seven boxes which provide detailed information on topics of particular relevance in 2019, namely the evolution of traffic in TARGET2, a survey on TARGET2 activity, liquidity distribution in TARGET2, the treatment of a participant in resolution, end point security, detection of fraudulent payments and a status update on the TARGET2/T2S consolidation project and future real-time gross settlement services.
Advice on legislation
ECB Opinion on a proposal for a regulation on the establishment of a European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) following the COVID-19 outbreak
On 8 May 2020 the Governing Council adopted Opinion CON/2020/14 on its own initiative.
ECB Opinion on amendments to Latvian national security, emergency situation and mobilisation laws
On 11 May 2020 the Governing Council adopted Opinion CON/2020/15 at the request of the Ministry of Finance of the Republic of Latvia.
ECB Opinion on amendments to the Union prudential framework in response to the COVID-19 pandemic
On 20 May 2020 the Governing Council adopted Opinion CON/2020/16 at the request of the Council of the European Union.
Corporate governance
Schedules for the meetings of the Governing Council and the General Council of the ECB in 2021
On 29 April 2020 the Governing Council approved its meeting schedule for 2021. The General Council also approved its meeting schedule for that year. The schedules are available on the ECB’s website.
Appointment of two members of the Market Infrastructure Board
On 4 May 2020 the Governing Council appointed Mr Giandomenico Scarpelli, Head of the Payment Systems Directorate at the Banca d’Italia, as a Eurosystem national central bank (NCB) member of the Market Infrastructure Board and Ms Christina Wejshammar, Head of the Payments Department at Sveriges Riksbank, as a non-Eurosystem NCB member of the Board. These appointments were made with immediate effect until 31 May 2022 so as to coincide with the mandates of the other Board members who had been appointed or reappointed for 36 months from 1 June 2019.
Joint Eurosystem procurement legal framework
On 4 May 2020 the Governing Council took note of the 2019 annual report of the Eurosystem Procurement Coordination Office (EPCO) and approved the 2020 update of the EPCO procurement plan. On the same day, the Governing Council also adopted Decision ECB/2020/27 amending Decision ECB/2008/17 laying down the framework for joint Eurosystem procurement. The amending legal act, which takes stock of the positive experience with joint procurement of goods and services and the permanent nature of EPCO as decided by the Governing Council on 26 April 2019, caters for enlarged participation possibilities and more operational flexibility in the daily operations. The decision is available on the ECB’s website.
International and European cooperation
19th annual review of the international role of the euro
On 14 May 2020 the Governing Council approved the 19th annual review of the international role of the euro and authorised its publication. In line with the biennial cycle for publication of this report series decided on in 2016, this year’s release is an interim version without special features. It does, however, contain one analytical box on the role of the euro in global green bond markets. The report presents a concise overview of developments in the use of the euro by non-euro area residents and provides updated statistical information on the main indicators of the euro’s international status considered to be of interest to the general public. The report is scheduled to be published on the ECB’s website on 15 June 2020.
Banking supervision
Compliance with EBA Guidelines on harmonised definitions and templates for funding plans
On 30 April 2020 the Governing Council did not object to a proposal by the Supervisory Board to notify the European Banking Authority (EBA) that, for the significant institutions under its direct supervision, the ECB will comply with the EBA Guidelines on harmonised definitions and templates for funding plans of credit institutions under Recommendation A4 of ESRB/2012/2 (EBA/GL/2019/05) from 31 December 2020, the date on which they become applicable. The Guidelines enhance the granularity of the reported data points and thereby increase comparability, allowing for a more thorough assessment of banks’ funding plans.
Revised Supervisory Review and Evaluation Process in 2020
On 12 May 2020 the Governing Council did not object to a proposal by the Supervisory Board to approve a revised Supervisory Review and Evaluation Process (SREP) timeline and approach in 2020, taking into account the impact of the COVID-19 pandemic on both human resources and other general resources. Accordingly, there will be a pragmatic approach to the SREP for the 2020 cycle, focusing on banks’ ability to handle the challenges of the COVID-19 crisis. The significant institutions under the ECB’s direct supervision were subsequently informed.
Compliance with EBA Guidelines on ICT and security risk management
On 13 May 2020 the Governing Council did not object to a proposal by the Supervisory Board to notify the EBA that, for the significant institutions under its direct supervision, the ECB will comply with the EBA Guidelines on ICT and security risk management (EBA/GL/2019/04) from 30 June 2020. The Guidelines contribute to a level playing field for all financial institutions and respond to the European Commission’s request to develop guidelines on ICT risk management and mitigation requirements in the EU financial sector.
Compliments of the ECB.

Together with our members we are creating a Video series of first-hand accounts of the Pandemic’s impact, both personally & professionally.

We invite you to join us today for a first-hand look at the impact of the global shutdown following the Coronavirus (COVID-19) outbreak – Today we are featuring Phil Hogan, the Trade Commissioner for the European Union based in Brussels.
The questions we asked our members for this series are:1) What are some challenges you, personally and your organization have faced?2) What are some of the most surprising (positive, innovative) responses/changes you have witnessed?3) How will this experience change us going forward, as a society and in terms of how we do business?

EACCNY has its finger on the pulse of how this worldwide pandemic is effecting companies and organizations on both sides of the Atlantic. EACC is where Americans & Europeans connect to do business.
Stay tuned for more on this series! We hope you enjoy these short vignettes our members and friends of the EACC created to share their experience.
 

May 19, 2020 |
• Credit terms remained broadly unchanged for almost all counterparties but are expected to tighten significantly the next reference period
• Financing collateralised by euro-denominated securities continued to decline
• Valuation disputes saw a strong increase
• Terms and conditions in secured financing and OTC derivatives markets were, on balance, broadly unchanged compared with one year ago
Against the background of the emerging coronavirus (COVID-19) crisis during the latter part of the review period December 2019 to February 2020, price and non-price credit terms offered to non-financial corporations, insurance companies and hedge funds tightened somewhat in both the securities financing market and the OTC derivatives market. Terms and conditions for banks and sovereign counterparties remained almost unchanged or eased somewhat on account of improving liquidity conditions. However, survey respondents expect credit terms and conditions to tighten significantly for all counterparty types over the next three months, in particular for banks and dealers. Respondents also reported a material increase in the volume of valuation disputes with banks and dealers.
The maximum amount and maturity of funding offered against euro-denominated securities continued to decline, especially for funding secured with high-quality government, corporate and covered bonds and, to a lesser extent, asset-backed securities. Haircuts increased for most collateral types. However, financing rates/spreads decreased somewhat for funding secured by all types of collateral except equities, convertible securities and high-yield corporate bonds. Respondents reported the strongest increase in collateral valuation disputes over a three-month reference period – for all collateral types except domestic government bonds – since the launch of the survey in 2013.
For all types of non-centrally cleared OTC derivatives, initial margin requirements increased, liquidity and trading deteriorated materially, and valuation disputes rose.
As a result of the developing coronavirus (COVID-19) crisis, many respondents submitted their survey responses for the period December 2019 to February 2020 after the 5 March 2020 deadline. These respondents finalised their feedback against the background of the rapidly evolving crisis. It cannot be excluded that these respondents took these developments into account in their submissions.
As in previous years, the March 2020 survey also included a number of special questions designed to offer a longer-term perspective on credit standards by comparing current conditions with those observed one year ago. Respondents reported that, on balance, terms and conditions in the secured financing and OTC derivatives markets remained broadly unchanged from the previous year, having tightened slightly for hedge funds and investment funds while easing for sovereigns, banks and dealers. In net terms, credit standards for secured funding eased relative to a year ago, while non-price conditions in OTC derivatives markets eased somewhat for most types of derivatives over the same period.
The SESFOD survey is conducted four times a year and covers changes in credit terms and conditions over three-month reference periods ending in February, May, August and November. The March 2020 survey collected qualitative information on changes between December 2019 and February 2020. The results are based on responses from a panel of 28 large banks, comprising 14 euro area banks and 14 banks with head offices outside the euro area.
Compliments of the European Central Bank.

April 15, 2020 |
Each year, CBO releases a set of four budget infographics that provide a detailed look at the past fiscal year as well as broader trends over the past few decades. Today, CBO published the latest infographics showing the federal budget results in fiscal year 2019.
These infographics help people understand how much the government spends and takes in each year and what programs and revenue sources account for the largest portions of those budgetary flows.
You can view the infographics for 2019 below, including an interactive version of the one about the overall federal budget:
The Federal Budget in 2019
Mandatory Spending in 2019
Discretionary Spending in 2019
Revenues in 2019
Infographics for fiscal years 2018 and 2017 are also available.
AUTHOR:Dan Ready is an analyst in CBO’s Budget Analysis Division.
Compliments of the Congressional Budget Office.