Welcome address by Fabio Panetta, Member of the Executive Board of the ECB, at the Third Annual Joint Conference of the Deutsche Bundesbank, European Central Bank and Federal Reserve Bank of Chicago on CCP Risk Management | Frankfurt am Main, 3 March 2021 |

Introduction[1]

It is with great pleasure that I welcome you to the third conference on central counterparty (CCP) risk management, organised by the ECB together with the Deutsche Bundesbank and the Federal Reserve Bank of Chicago. This event has become an increasingly relevant international forum to discuss key challenges surrounding central clearing.
In my remarks today, I will reflect on key developments since we met a year ago. The coronavirus (COVID-19) pandemic is naturally foremost in my mind – the turmoil that hit financial markets last spring has underlined the need for robust and resilient market infrastructures such as CCPs. The end of the transition period following the United Kingdom’s departure from the European Union is of course another crucial change, and I will discuss its implications for financial stability in the EU in relation to central clearing. I will then argue that these developments show the urgent need for the EU to develop a deep and integrated single capital market.
The need for robust and resilient CCPs
Since the G20 agreed to make central clearing mandatory for over-the-counter (OTC) derivatives at the 2009 Pittsburgh summit, CCPs have become central pieces of the global financial infrastructure. Some CCPs are systemically relevant for multiple jurisdictions in view of the direct and indirect clients they serve worldwide and their interconnectedness with systemically important global banks.
We have seen progress in making global CCPs safer and more resilient, starting with the safeguards introduced to address the shortcomings that the global financial crisis revealed. Today, clearing risks are much lower than they were ten years ago. And the robustness that CCPs have displayed since the outbreak of the pandemic shows that regulatory efforts are paying off.
We should, however, continue to strengthen the resilience of CCPs. Last March we saw spikes in volatility and trading activity, coupled with a surge in liquidity and credit risk at the global level. Such situations call for closer cross-border regulatory, supervisory and oversight cooperation between CCPs, banks and public authorities.
To prevent market fragmentation and preserve financial stability, both domestically and internationally, in the face of such adverse shocks, CCPs must meet the highest standards of financial and operational risk management. And an enhanced dialogue is necessary between CCPs, clearing banks and clients to ensure that, while managing their risks prudently, they each consider the impact that their actions may have on others and on the entire financial system.
Central clearing is critical for sharing and managing risks effectively, and thus for supporting economic growth. Euro-denominated central clearing must not be a source of instability in the euro area or hamper the transmission of monetary policy. If disruptions in systemically important clearing services are not managed appropriately, they could be channelled through the large payment flows between CCPs and their participants, with knock-on effects on the smooth functioning of our payment and banking systems. The reverberations could reach financial markets and the instruments we rely on to perform central banking activities.
The post-Brexit clearing landscape
We need to consider carefully the implications of the United Kingdom’s departure from the EU, in particular in relation to the derivatives transactions of EU entities.
The City of London has long been a leading central clearing hub for EU banks and their clients, who have relied on UK CCPs for the clearing of OTC derivatives of all asset classes and in all currencies. UK CCPs hold a dominant position for the clearing of euro-denominated interest rate derivatives and credit default swaps, with a market share of about 80% and 40% respectively.
Brexit has made it urgent to consider the extent to which the EU should depend on non-EU countries for critical market infrastructure. With respect to derivatives clearing, since 1 January 2021 UK CCPs have been temporarily considered equivalent to EU CCPs from an oversight and regulatory perspective, so as to avoid potential cliff-edge financial stability risks. This equivalence decision by the European Commission is valid for 18 months, until 30 June 2022.[2] Meanwhile, industry stakeholders are encouraged to reduce their EU exposures to UK CCPs. The Commission has set up a working group with EU authorities and industry to address the issues involved and to facilitate the transfer of derivatives contracts denominated in euro or other EU currencies to EU CCPs.
From a supervisory perspective, UK CCPs have been recognised as third-country CCPs by the European Securities and Markets Authority (ESMA).[3] And two UK CCPs have been recognised as being systemically important for the EU (Tier 2 CCPs). In line with the provisions of the European Market Infrastructure Regulation, this means that they are subject to ESMA’s supervision.
This set-up helps to ensure that Tier 2 CCPs comply with EU regulatory standards. During this 18-month period of equivalence, ESMA will assess whether this set-up is sufficient to address risks to EU financial stability emanating from these two systemically important UK CCPs. As part of its responsibility for issuing the euro, the Eurosystem – which comprises the ECB and national central banks of the euro area – will develop its own stance on the matter and will contribute to ESMA’s assessment. At the end of this process, ESMA may recommend that the Commission deny the UK CCPs recognition to provide certain clearing services or activities in the EU if they pose excessive risks to financial stability. If this recommendation were to affect euro-denominated clearing services, the Eurosystem’s agreement would also be required.
The ECB will consider the costs and benefits of any such measure very carefully, as we are well aware of its far-reaching impact on derivatives markets as well as the challenges this would pose for all involved. Requiring more critical services to be provided by EU CCPs would also make our domestic clearing landscape more systemically important, and would increase cross-border risks within the EU. In such a scenario, the current framework for supervising EU CCPs – which still largely relies on national authorities and gives ESMA and the Eurosystem a limited role – would not be fit for purpose. In this situation, it would be essential for EU authorities to have control over clearing activities that are systemic to the EU and critical to the transmission and conduct of monetary policy. This would require the EU dimension of CCP supervision to be scaled up.
Investors are adapting to the post-Brexit landscape. For example, in January 2021 the trading of euro-denominated shares moved from London to venues in Amsterdam and Paris. This followed the Markets in Financial Instruments Regulation (MiFIR) requiring that shares listed in the EU only be traded by EU market participants on EU-regulated venues, or on third-country infrastructures considered “equivalent” by the Commission. The trading of EU carbon contracts is also expected to move from London to Amsterdam. For OTC derivatives, the redistribution of trading has been less clear-cut in direction, with dealers moving some activities to EU trading venues and others to US venues, the latter having equivalence arrangements with both the EU and the United Kingdom.
Towards a well-functioning capital markets union in the EU
The events of the past year – the pandemic and Brexit – have put renewed emphasis on the need for the EU to have a well-functioning capital markets union. In fact, EU leaders have agreed to finance the recovery from the pandemic by borrowing collectively through financial markets.
The issuance of high-quality euro-denominated sovereign bonds under the Next Generation EU (NGEU) recovery fund is a step towards achieving deeper, more complete and liquid capital markets and establishing a European safe asset. As the Commission intends to raise 30% of the €750 billion recovery fund by issuing green bonds, NGEU is also expected to contribute to further developing sustainable and green finance.
In parallel, the Commission has set out 16 specific actions to boost the EU’s capital markets union, which are aligned with many of the ECB’s own priorities.[4] These actions aim to deepen and further integrate European capital markets, in order to allow investors, savers, firms and market infrastructures alike to access a full range of services and products, regardless of where they are in the EU.
A deep, single capital market will also strengthen the international role of the euro,[5] as further developed euro-denominated markets, derivatives and benchmarks will reduce transaction costs, curb spreads and mitigate rollover risks. This will in turn attract foreign investors and widen the possibilities of using the euro in international transactions.
Conclusion
Let me conclude. Assessing potential vulnerabilities in the light of current challenges is key to making financial markets and infrastructures more resilient.
Authorities and market participants are reflecting on the lessons to be learned from the pandemic and this will be a key topic of today’s discussions. Our panellists will provide insights on CCP margin practices and the related funding and operational complexities that emerged last spring and which we need to address.
This conference will also provide an opportunity to discuss the direct and indirect implications of climate change for central clearing. Cash and derivatives markets have already developed products to facilitate sustainable investments and help hedge against climate risks.
Our panellists will also consider the changing clearing landscape, including some of the regulatory and supervisory cooperation issues I have mentioned and the global dimension of this debate.
Given the challenges currently faced by economies and financial markets, finding the right mix of internal capacity building, cooperation and innovation will be crucial to make central clearing even more resilient. I am sure this conference will give rise to a fruitful exchange of views.
Thank you for your attention.

Compliments of the European Central Bank.
The post ECB | Fabio Panetta Speech: Central clearing and the changing landscape first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Much of Europe rang in the start of 2021 with new lockdowns and weak economic activity. This same period saw the roll out of effective vaccines. While the end of the pandemic will remain a race between the virus and vaccines, there is now light at the end of the tunnel.
At the same time, government programs aimed at supporting lives and livelihoods have been highly successful. Amid the pandemic’s enormous human toll, these measures provided critical lifelines to people and have preserved the structure of the economy and the income of workers. The massive policy support saved millions of European firms, accounting for over 30 million jobs.
However, as the pandemic persists and measures—such as loan repayment moratoria—expire, bankruptcies could rise, leading to a surge in unemployment and nonperforming loans.
To support a rebound and strong recovery in 2021, emergency programs and lifelines will need to be maintained, but they also need to adapt.

‘Europe now needs to gradually change the support to firms from providing liquidity toward strengthening their equity.’

Relief policies for businesses
Almost a year into the pandemic, many European companies, especially micro and small enterprises in high-contact sectors, continue to reel from the shock of COVID-19. With containment measures preventing many firms from operating at full capacity or at all, government support programs—such as job retention schemes, which at their peak benefitted 54 million people—have been essential for businesses and people to survive. Liquidity (ready cash) provided to companies prevented cascading bankruptcies. It allowed banks to extend loans rather than amplify the downturn by adding a credit crunch.
In a recent IMF staff study (see presentation here), which covers 26 European countries (of which 21 are EU members), we estimate that without policy support, the share of illiquid firms in Europe would have more than doubled and that of insolvent firms would have almost doubled by end-2020.
But many companies are still short of equity
Public support so far is estimated to have filled 60 percent of European firms’ liquidity needs because of the COVID-19 shock, but only 30 percent of the equity shortfalls (the extent to which firms’ debt exceeds their assets). Even with this scale of support, the share of insolvent firms as a share of total firms is estimated to have increased by 6 percentage points. Equity shortfalls are largest for micro firms and small businesses, with current policies absorbing only one quarter of the equity gaps versus over two fifths for larger corporations.
Without additional equity support, some 15 million jobs are at risk. About 2 to 3 percent of GDP will be needed to close the equity gap and provide firms sufficient equity so they would no longer be in difficulty, focusing only on the firms that were solvent before COVID-19. Both private and public sector action is required.
How can this be done?
Liquidity support cannot address equity shortfalls. Policymakers will have to move the dial from debt-increasing liquidity support to more equity support for those firms that have good prospects after the pandemic.
Individual countries are coming up with innovative equity programs, but they face many implementation challenges. The public sector is not well placed to assess the viability of a large number of small businesses nor to monitor their performance. This will involve avoiding that public support is more attractive for bad than good firms—adverse selection—and preventing firms from mismanaging their business once they have received state support—moral hazard. Targeting support—something that is hard to do—will be critical to avoid wasting taxpayers’ money and should be improved. Mechanisms that target firms more accurately are likely to be more complicated, reducing take-up and timeliness of the aid. Another difficulty is how to ensure that the private sector does its part.
Involving banks, which know their clients and routinely assess business plans, is an important principle that can help address adverse selection. Incentivizing private investors to contribute equity mitigates moral hazard. Here are some examples:

France’s proposed program of participatory, subordinated loans envisions a central role for banks in selecting viable firms and retaining a share of these loans on their books—ensuring “skin in the game.”
In Italy’s program for small and medium-sized enterprises, private equity injections are encouraged by tax incentives and the government’s contribution is capped to a fraction of the private investors’ capital increase, who have to remain invested for some years.
Adequate contributions and burden sharing by investors is required by Ireland’s support scheme for small businesses, whereby Enterprise Ireland—a government agency—assesses firms’ plans to restore long-term viability with the help of market appraisals.

Healthier firms, stronger recovery
Europe now needs to gradually change the support to firms from providing liquidity toward strengthening their equity. For those firms that have to restructure debt or be liquidated, out-of-court debt restructurings and insolvency regimes will need to be enhanced. Healthier firms will forestall a return of “doom loops” between Europe’s real and financial sectors. Most importantly, healthier firms will create more jobs. Upskilling, training, and job search programs should help displaced workers find new jobs in sectors that are expanding. Countries will also need to invest in the green and digital transitions to boost resilience and productivity. This course of action will ensure a strong and lasting recovery after the pandemic.
Compliments of the IMF.
The post IMF | Staying Afloat: New Measures to Support European Businesses first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the Commission approved 226 projects in all 27 Member States that will support their efforts in designing and implementing national reforms to enhance growth. These support actions are delivered in the framework of the Technical Support Instrument (TSI) and will have a total budget of €102.6 million for the year 2021 to promote economic, social and territorial cohesion in the European Union.
Commissioner for Cohesion and Reforms, Elisa Ferreira, said: “Reforms are necessary to better the environment for businesses, reinforce the healthcare systems, strengthen social and educational systems and overall enhance the resilience of Member States and stakeholders when facing difficult challenges and global crises. The Technical Support Instrument is a powerful tool that can enable Member States to carry out the reforms they need for a sustainable growth.”
The TSI is the Commission’s main instrument to provide technical support to reforms in the EU. It is part of the Multiannual Financial Framework (MFF) 2021-2027 and of the Recovery Plan for Europe. It builds on the success of its predecessor, the Structural Reform Support Programme (SRSP), which since 2017 has provided more than 1.000 technical support projects in all Member States.
Reforms eligible for TSI support include, yet are not limited to, public administration, governance, tax policies, business environment, financial sector, labour market, education systems, social services, health care, green transition – e.g. the Renovation Wave – and digital services. Strengthening the institutional and administrative capacity to design and implement reforms and investments is essential to foster resilience and underpin recovery.
With an increased budget of €864 million over the period 2021-2027, the TSI can also provide technical support to help Member States prepare and implement the Recovery and Resilience Plans (RRPs), thus ensuring that they are better equipped to access financing of the Recovery and Resilience Facility (RRF). In total, more than 60% of the pre-selected TSI projects for 2021 are related to the implementation of the RRPs, while 30% focus on the Green Deal and 44% on the digital transition.
TSI support also helps Member States in effectively addressing the challenges identified in the Country-specific Recommendations.
All the information can be found in the adopted implementing Decision C(2021)1335 and first TSI Annual Work Programme.
Compliments of the European Commission.
The post EU Commission supports reform projects in Member States for more jobs and sustainable growth first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the European Commission published its annual report on the Safety Gate, which is the EU rapid alert system for dangerous consumer products helping to take dangerous non-food products off the market. The report shows that the number of actions taken by authorities following an alert is growing year by year, reaching a new record number of 5,377, compared to 4,477 in 2019. 9% of all alerts raised in 2020 concerned products related to COVID-19, mostly masks meant to protect but failing to do so. Other examples for dangerous COVID-19 related products notified in the Safety Gate are disinfectants containing toxic chemicals, such as methanol that can lead to blindness or even death if swallowed, or UV sanitizers that exposed users to strong radiation causing skin irritations.
Didier Reynders, Commissioner for Justice, said: “The Safety Gate has demonstrated to be   crisis-proof: during the COVID-19 pandemic, it has helped protect consumers by being a key instrument to efficiently and swiftly circulate information concerning dangerous products, such as unsafe masks or toxic disinfectants and remove them from the market. With protective tools such as this one, consumer rights are further guaranteed.”  
Main findings of the report
Surveillance action focused on COVID-19 related products that have become essential to all consumers and hence in 2020 there were 161 alerts on masks, 3 alerts on specific overalls, 13 alerts on hand disinfectants and 18 alerts on UV lamps supposed to function as sterilizers. The alerts circulated in the system continue this year.
In 2020, authorities from the 31 participating countries of the Safety Gate network (EU Member States plus Norway, Iceland, Liechtenstein and the UK) exchanged a total of 2,253 alerts on measures taken against dangerous products through the system. They reacted with 5,377 follow-up actions. This represents an increase of more than 20% from the 2019 number of follow-ups.
According to the report, toys are the most notified product category (27% of total notifications), followed by motor vehicles (21%) and electrical appliances and equipment (10%). This illustrates that market surveillance in the EU has a special focus on children, a vulnerable consumer group. In general, the most frequently flagged concerns related products causing injuries such as fractures or concussions (25%), followed by chemical components in products  (18%) and risks for children to choke (12%).
In comparison to last year, more online marketplaces are committing to improve the safety of the products they sell. Yesterday, two new signatories have joined the Product Safety Pledge initiative: Joom and Etsy. They thus promise to check products on Safety Gate are not for sale on their websites and to act quickly in case national authorities signal to them any dangerous products, which should be taken down.
Next steps
The Commission rewards businesses that go the extra mile to protect consumers with the EU’s Product Safety Award. This year’s edition, which was launched for applications yesterday, will focus on initiatives aimed at protecting vulnerable consumers in particular and on the use of new technologies to enhance product consumer safety. The deadline to apply is April 30th. You can find more information here.
Background
Since 2003, the Safety Gate enables quick exchange of information between EU/EEA member states, the UK and the European Commission about dangerous non-food products posing a risk to health and safety of consumers. This way, appropriate follow-up action can be taken and products can be banned from the market.
Matching with the publication of the report, the Commission has launched its fully revamped Safety Gate public website with a modern and user-friendly interface to speed up and facilitate the notification process. Pages are progressively translated into all EU languages, Icelandic and Norwegian. Businesses can also use the Business Gateway to quickly and efficiently inform national authorities about security concerns regarding a product that they have put on the market.
Another action on consumer protection is the https://ec.europa.eu/info/files/product-safety-pledge_en , which sets out specific voluntary actions of marketplaces to swiftly remove offers of unsafe products from their platforms. To date, eleven online marketplaces have signed this agreement to cooperate with Member States to remove dangerous products from their websites: bol.com, eMAG, Wish.com, AliExpress, Amazon, eBay, Rakuten France, Allegro, Cdiscount, and yesterday, Etsy and Joom.
Compliments of the European Commission.
The post Protecting European consumers: Safety Gate efficiently helps take dangerous COVID-19 products off the market first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Governor Lael Brainard at the 2021 Annual Washington Conference, Institute of International Bankers (via webcast) |
It has now been one year since the devastating effects of the first wave of the COVID-19 pandemic hit our shores, a year marked by heartbreak and hardship.1 We look forward to a brighter time ahead, when vaccinations are widespread, the recovery is broad based and inclusive, and the economy fully springs back to life. But we should not miss the opportunity to distill lessons from the COVID shock and institute reforms so our system is more resilient and better able to withstand a variety of possible shocks in the future, including those emanating from outside the financial system.
The Dash for Cash
Investor sentiment shifted dramatically in the early days of March 2020 with the realization that COVID would disrupt the entire global economy. Short-term funding markets became severely stressed as market participants reacted to the advent of this low-probability catastrophic event. The abrupt repositioning and repricing of portfolios led to a dash for cash, as even relatively safe Treasury holdings were liquidated, volatility spiked, and spreads in Treasury and offshore dollar funding markets widened sharply. Forceful and timely action by the Federal Reserve and other financial authorities was vital to stabilize markets and restore orderly market functioning.
Although some parts of the financial system that had undergone significant reform in the wake of the Global Financial Crisis remained resilient, the COVID stress test highlighted significant financial vulnerabilities that suggest an agenda for further financial reform. I will briefly comment on these areas of vulnerability as well as areas where earlier reforms led to greater resilience.
Short-Term Funding Market Vulnerabilities
The COVID shock brought to the fore important vulnerabilities in the systemically important short-term funding markets that had previously surfaced in the Global Financial Crisis. Signs of acute stress were readily apparent in intermediaries and vehicles with structural funding risk, particularly in prime money market funds (MMFs). Indeed, it appears these vulnerabilities had increased, as assets held in prime MMFs doubled in the three years preceding last March. When the COVID shock hit, investors rapidly moved toward cash and the safest, most liquid financial instruments available to them. Over the worst two weeks in mid-March, net redemptions at publicly offered institutional prime MMFs amounted to 30 percent of assets. This rush of outflows as a share of assets was faster than in the run in 2008, and it appears some features of the money funds may have contributed to the severity of the run.2
The run in March forced MMFs to rapidly reduce their commercial paper holdings, which worsened stress in short-term funding markets. Funding costs for borrowers shot up, and the availability of short-term credit at maturities beyond overnight plunged. These markets provide the short-term credit many businesses need to keep operating and meet payrolls. So when short-term funding markets shut down, it can imperil many businesses, too.
For the second time in 12 years, a run on MMFs triggered the need for policy intervention to mitigate the effect on financial conditions and the wider economy. To head off the risk of widespread business failures and layoffs, the Federal Reserve took a number of actions, including announcing the Commercial Paper Funding Facility on March 17 and the Money Market Mutual Fund Liquidity Facility on March 18, 2020. Following the announcement of these facilities, prime MMF redemptions slowed almost immediately, and other measures of stress in short-term funding markets began to ease.
The March 2020 turmoil highlights the need for reforms to reduce the risk of runs on prime money market funds that create stresses in short-term funding markets. The President’s Working Group on Financial Markets has outlined several potential reforms to address this risk, and the Securities and Exchange Commission recently requested comment on these options.3 If properly calibrated, capital buffers or reforms that address the first-mover advantage to investors that redeem early, such as swing pricing or a minimum balance at risk, could significantly reduce the run risk associated with money funds. Currently, when some investors redeem early, remaining investors bear the costs of the early redemptions. In contrast, with swing pricing, when a fund’s redemptions rise above a certain level, the investors who are redeeming receive a lower price for their shares, reducing their incentive to run.4 Similarly, a minimum balance at risk, which would be available for redemption only with a time delay, could provide some protection to investors who do not run by sharing the costs of early redemptions with those who do. Capital buffers can provide dedicated resources within or alongside a fund to absorb losses and reduce the incentive for investors to exit the fund early.
To be sure, domestic money market funds are not the only vulnerable cash-management investment vehicles active in U.S. short-term funding markets. For example, offshore prime money funds, ultrashort bond funds, and other short-term investment funds also experienced stress and heavy redemptions last March. The runs on offshore MMFs that hold dollar-denominated assets like commercial paper underscore the importance of working with international counterparts to increase the resilience of short-term funding markets. We are supporting the work of the Financial Stability Board to assess options for mitigating the vulnerabilities of MMFs globally and report on them later this year.
The COVID shock also highlighted the structural vulnerabilities associated with the funding risk of other investment vehicles that offer daily liquidity while investing in less-liquid assets, such as corporate bonds, bank loans, and municipal debt. Funds that invest primarily in corporate bonds saw record outflows in March 2020. These open-end funds held about one-sixth of all outstanding U.S. corporate bonds prior to the crisis. Bond mutual funds, including those specializing in corporate and municipal bonds, had an unprecedented $250 billion in outflows last March, far larger than their outflows at any time during the 2007–09 financial crisis. The associated forced sales of fund assets contributed to a sharp deterioration in fixed-income market liquidity that necessitated additional emergency interventions by the Federal Reserve. In assessing possible reforms to address this run risk, swing pricing could be helpful, because it reduces the first-mover advantage for running from a fund by imposing a cost when redemptions are high. Swing pricing has been used for more than a decade in European mutual funds, where it has been shown to slow redemptions in stress events.5 In the United States, mutual funds have not adopted swing pricing, in part because of technical obstacles.
Treasury Market Functioning
The COVID shock also revealed vulnerabilities in the market for U.S. Treasury securities. The U.S. Treasury market is one of the most important and liquid securities markets in the world, and many companies and investors treat Treasury securities as risk-free assets and expect to be able to sell them quickly to raise money to meet any need for liquidity. Trading conditions deteriorated rapidly in the second week of March as a wide range of investors sought to raise cash by liquidating the Treasury securities they held. Measures of trading costs widened as daily trading volumes for both on- and off-the-run securities surged. Indicative bid-ask spreads widened by as much as 30-fold for off-the-run securities. Market depth for the on-the-run 10-year Treasury security dropped to about 10 percent of its previous level, and daily volumes spiked to more than $1.2 trillion at one point, roughly four standard deviations above the 2019 average daily trading volume. Stresses were also evident in a breakdown of the usually tight link between Treasury cash and futures prices, with the Treasury cash–futures basis—the difference between prices of Treasury futures contracts and prices of Treasury cash securities eligible for delivery into those futures contracts—widening notably.
Selling pressures were widespread, reflecting sales by foreign official institutions, rebalancing by asset managers, a rapid unwinding of levered positions, and precautionary liquidity raising. Available data suggest that foreign institutions liquidated about $400 billion in Treasury securities in March, with more than half from official institutions and the remainder from private foreign investors, at a time when offshore dollar funding markets also experienced acute stress. Domestic mutual funds sold about $200 billion during the first quarter, selling their less-liquid Treasury securities in order to raise cash to meet investor redemptions. Hedge funds reduced long cash Treasury positions by an estimated $35 billion.6
Dealers play a central role in the Treasury market by buying and selling securities and providing financing to investors. Their capacity or willingness to intermediate these flows was strained amid the elevated uncertainty and intense and widespread selling pressure in mid-March. Operational adjustments associated with the rapid move to remote work may also have inhibited intermediation.
The acute stresses in the Treasury market necessitated emergency intervention by the Federal Reserve at an unprecedented scale. The Federal Open Market Committee authorized purchases of Treasury securities and agency mortgage-backed securities (MBS) “in the amounts needed” to support smooth market functioning of these markets.7 Between March 12 and April 15, the Federal Reserve increased its holdings of Treasury securities by about $1.2 trillion and agency MBS by about $200 billion. The Federal Reserve provided overnight and term repurchase agreement (repo) operations to address disruptions in Treasury financing markets. These actions rapidly restored market functioning, and a variety of indicators had returned to pre-COVID levels by the summer.8
While the scale and speed of flows associated with the COVID shock are likely pretty far out in the tail of the probability distribution, the crisis highlighted vulnerabilities in the critically important Treasury market that warrant careful analysis. A number of possible reforms have been suggested to strengthen the resilience of the Treasury market. For instance, further improvements in data collection and availability have been recommended to enhance transparency related to market participants, such as broker-dealers and hedge funds. Some have suggested that the Federal Reserve could provide standing facilities to backstop repos in stress conditions, possibly creating a domestic standing facility or converting the temporary Foreign and International Monetary Authorities (FIMA) Repo Facility to a standing facility.9 Other possible avenues to explore include the potential for wider access to platforms that promote forms of “all to all” trading less dependent on dealers and, relatedly, greater use of central clearing in Treasury cash markets.10 These measures involve complex tradeoffs and merit thoughtful analysis in advancing the important goal of ensuring Treasury market resilience.
Offshore Dollar Funding Markets
The global dash for cash also led to severe stress in offshore dollar funding markets, where foreign exchange swap basis spreads increased sharply to levels last seen in the Global Financial Crisis. Foreign banking organizations serve as key conduits of dollar funding for foreign governments, central banks, businesses, nonbank financial institutions, and households.11 They hold $14 trillion in dollar-denominated claims—about half of the total global dollar claims of banks. The Federal Reserve and several other central banks responded swiftly to distress in the offshore dollar funding markets by announcing the expansion and enhancement of dollar liquidity swap lines on March 15, followed on March 19 by the reopening of temporary swap lines with the nine central banks that had temporary agreements during the Global Financial Crisis. On March 30, the Federal Reserve introduced a new temporary FIMA Repo Facility to support the liquidity of Treasury securities held by foreign monetary authorities, an important innovation. Following these interventions, foreign exchange swap basis spreads started moving down almost immediately and within a few weeks reached their levels before the COVID shock.
Central Clearing
The reforms put in place pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in response to the previous crisis appear to have supported the resilience of the financial system as it absorbed the COVID shock. Importantly, regulators instituted global reforms to encourage and, in some cases, mandate central clearing after observing the loss of confidence in key banking intermediaries during the Global Financial Crisis associated with the opaque web of bilateral derivatives contracts. As a result, during the COVID turmoil, the greatly expanded scope of central clearing, with the attendant reduction in counterparty and settlement risks, supported the orderly functioning of critical securities and derivatives markets amid sharply increased trading volumes and spiking volatility. Moreover, several central clearing platforms (CCPs) successfully handled problems that emerged at a few smaller market participants, without noticeable spillovers to other markets and institutions.
However, as part of the risk controls that are inherent in central clearing, the COVID market turmoil generated exceptionally large flows of cash through CCPs from market participants with mark-to-market losses to those participants with corresponding gains. Furthermore, during the March COVID turmoil, a number of CCPs collected significantly higher financial resources from their members to protect against increased risk as captured by their risk models. These demands for liquidity were met adequately, and the markets operated efficiently and effectively, although the sudden spikes in CCP requirements may have stressed the liquidity positions of some trading firms. And while CCPs performed well during this period of stress, forceful public emergency interventions and the strong capitalization of banks likely mitigated the risks of large clearing member defaults.
The COVID-19 shock presents an important opportunity to reflect on lessons learned about central clearing by the public and private sectors. CCPs could consider the effects of the market dysfunction on their liquidity risk-management plans, including their assumptions regarding the ability to raise cash from noncash assets or securities. In addition to reassessing their liquidity planning, CCPs could also assess the tradeoffs between their own risk-management decisions and broader financial stability concerns, particularly in light of how CCPs may have contributed to deleveraging by some market participants in March by the magnitude of the increases in financial resources they collected when trading and volatility spiked. CCPs could assess their margin models, consider improvements to reduce pro-cyclicality, and consider increased transparency to help clearing members anticipate margin calls during periods of volatility. The holistic review by the Financial Stability Board, in which we participate, could provide important insights into these issues.12
Bank Capital and Liquidity
The resilience of the banking sector in response to the COVID shock underscores the importance of guarding against erosion of the strong capital and liquidity buffers and risk-management, resolution, and stress-testing programs put in place pursuant to the Dodd-Frank Act. Banks entered the pandemic with strong capital and liquidity buffers, especially those banks whose size and complexity are systemically important. Strong capital and liquidity buffers allowed the banking system to accommodate the unprecedented demand for short-term credit from many businesses that sought to bridge the pandemic-related shortfalls in revenues. Banks’ capital positions initially declined because of this new lending and strong provisioning for loan losses but have since risen above their pre-pandemic levels, reflecting better-than-expected loan performance and a reduction in credit provision as well as caps on dividends and restrictions on share repurchases in the past several quarters.
Strong capital and liquidity positions will remain important, as banks still face significant challenges—including an environment of higher-than-normal uncertainty. For instance, some sectors of commercial real estate loans and commercial and industrial loans are more vulnerable than before the crisis. Similarly, net interest margins could remain in the lower part of their historical ranges for some time. Although losses and delinquency rates on bank loans are currently low, performance could deteriorate as borrowers exit forbearance, with particularly hard-hit businesses and households facing arrears on rent and mortgage payments.13 Recent developments have been encouraging, but downside risks remain, which could delay recovery and lead to higher losses.
Bank resilience benefited from the emergency interventions that calmed short-term funding markets and from the range of emergency facilities that helped support credit flows to businesses and households. While the results of our latest stress test released in December 2020 show that the largest banks are sufficiently capitalized to withstand a renewed downturn in coming years, the projected losses take some large banks close to their regulatory minimums.14 According to past experience, banks that approach their regulatory capital minimums are much less likely to meet the needs of creditworthy borrowers. It is important for banks to remain strongly capitalized in order to guard against a tightening of credit conditions that could impair the recovery.
Cyclical Vulnerabilities
Structural vulnerabilities such as those discussed earlier could interact with cyclical vulnerabilities in the financial system, potentially magnifying the associated risks. Valuations are elevated in a number of asset classes relative to historical norms. After plunging as the pandemic unfolded last spring, broad stock price indexes rebounded to levels well above pre-pandemic levels. Some observers also point to the potential for stretched equity valuations and elevated volatility due to retail investor herd behavior facilitated by free online trading platforms. Risk appetite in credit markets is also elevated, with high-quality investment-grade (IG) corporate debt trading at slightly negative real yields and issuance of leveraged loans returning to 2019 levels. While financial markets are inherently forward-looking, taking into account the prospects of widespread vaccinations and substantial fiscal support, a variety of risks related to the virus could result in a sudden change in investor risk sentiment. This could, for instance, trigger outflows from corporate bond mutual funds and other managed funds with an investor base that is sensitive to fund performance. Commercial real estate prices are susceptible to declines if the pace of distressed transactions picks up or if the pandemic leads to permanent changes in patterns of use—for instance, a decline in demand for office space due to higher rates of remote work or for retail space due to a permanent shift toward online shopping.
Debt loads at large nonfinancial firms were high coming into the pandemic and remain so. Measures of leverage at large firms remain near the historical highs reached at the beginning of 2020, with the aggregate book value of debt exceeding 35 percent of assets in the third quarter. A large portion of IG debt is currently at the lowest IG rating, making this debt vulnerable to downgrades. Such downgrades may bring insurers, mutual funds, and other regulated institutional investors closer to internal or statutory thresholds on their holdings of non-IG securities, potentially forcing these institutions to shed assets.
Over a longer horizon, changes in the economic environment associated with low equilibrium interest rates, persistently below-target trend inflation, and low sensitivity of inflation to resource utilization could be expected to contribute to a low-for-long interest rate environment and reach-for-yield behavior. In these kinds of environments, it is valuable to deploy macroprudential tools, such as the countercyclical capital buffer, to mitigate potential increases in financial imbalances.
The Path Ahead
The COVID shock subjected the financial system to an acute stress that necessitated emergency interventions on a massive scale by financial authorities around the world. The COVID turmoil underscores the importance of ensuring the financial system is resilient to a wide range of shocks, including those emanating from outside the financial system. Regulators and international standard-setting bodies have an opportunity to draw important lessons from the COVID shock about where fragilities remain, such as in prime MMFs and other vehicles with structural funding risk. A number of common-sense reforms are needed to address the unresolved structural vulnerabilities in nonbank financial intermediation and short-term funding markets.
Compliments of the U.S. Federal Reserve.
The post U.S. FED | Speech: Some Preliminary Financial Stability Lessons from the COVID-19 Shock first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Accelerated by the pandemic, the digital future is coming at us faster than ever before, and maybe faster than we can imagine. In this issue, we explore the possible consequences—the good, the bad, and the gray.
For millions, technology has been a lifeline, changing the way we work, learn, shop, and entertain ourselves. In a year like no other, it has spurred game-changing digital shifts. Governments moved quickly, using mobile solutions to provide cash assistance; financial technology has helped the survival, and in some cases, growth of small- and medium-sized businesses; and the first national digital currency, in The Bahamas, provides a glimpse of the future of money.
Despite the promise of digital transformation, it can also drive unequal outcomes in education, opportunities, and access to health care and financial services. Automation has destroyed jobs, some permanently. The chasm between the digitally connected and the unconnected—across and within countries and between rural and urban areas—has amplified social and economic inequalities.
Daron Acemoğlu underscores that the government can and should play a regulatory role, with incentives for innovation toward “human-friendly” technologies that produce good jobs. Hyun Song Shin and coauthors elaborate on smart policies that can bring more people—particularly the poorest—into the financial system. And Sierra Leone’s Minister of Education, David Sengeh, describes in an interview how he has made his country’s education system both more digital and more inclusive.
Clearly for such initiatives to succeed, as Cristina Duarte emphasizes, countries must scale up investment in digital infrastructure, such as access to electricity, mobile and internet coverage, and digital ID.
Still, there are real risks: Tim Maurer focuses on addressing cyber threats to the financial system. Yan Carrière-Swallow and Vikram Haksar suggest that commercial interests must be balanced with protection of privacy and data integrity. Other contributors illuminate digital taxation, data bias and ethics, and the need for global tech cooperation.
Digitalization can transform economies and lives. The key takeaway: innovation needs to have public value and be shaped to bring everyone into the digital age.
Elsewhere in this issue, IMF chief economist Gita Gopinath highlights in a Straight Talk column the stark divergence in prospects across countries, regions, and sectors and the needed policy actions on several fronts. Sam Bowles and Wendy Carlin advance the view that the pandemic, along with climate change, will alter thinking about economics and the social contract. And authors Ruchir Agarwal, Ina Ganguli, and Patrick Gaule find that policies that help identify and nurture young talent from poorer countries could advance the global knowledge frontier.
Finally, Prakash Loungani profiles Tel Aviv University’s Assaf Razin, early scholar of the promise and perils of globalization.
Read FULL ISSUE here.
Author:

Gita Bhatt, Head of Policy Communications and Editor-In-Chief of Finance & Development Magazine, IMF

Compliments of the IMF.
The post The Haves and Have-nots Of the Digital Age first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Panel contribution by Luis de Guindos, Vice-President of the ECB, at the Banque de France / Sciences Po Financial Stability Review Conference 2021 “Is macroprudential policy resilient to the pandemic?” |
Introduction
It is a great pleasure to be here this afternoon and share some thoughts on the future of macroprudential policy in the euro area after the coronavirus (COVID-19) pandemic.
About one year ago, the euro area was hit by a major unexpected shock: the COVID-19 pandemic. While this health and economic crisis has had, and continues to have, a severe impact on European citizens and businesses, the euro area banking sector has so far weathered the crisis well. Rather than being part of the problem, it has been part of the solution. The banking sector has managed to support the economy through continued lending, including to the sectors most affected by the lockdown measures. Compared to past crisis episodes, there are two main reasons why banks have played a different role in this crisis.
First, in terms of capital and liquidity, the euro area banking sector was much better prepared than it was before the great financial crisis. This was not least due to the progress made over the past decade in strengthening the regulatory standards for banks and moving towards the banking union.
Second, credit provision during the pandemic has been aided by decisive government support measures, such as public loan guarantees and direct and indirect support to firms, and by relief measures taken by micro- and macroprudential authorities. Specifically, ECB Banking Supervision allowed banks to temporarily operate below the level of capital defined by Pillar 2 guidance and the combined buffer requirement and recommended that banks refrain from dividend payments and share buy-backs. On the macroprudential side, several national authorities either announced a full release of countercyclical capital buffers or revoked previously announced increases to these and other buffers. Together, the micro- and macroprudential measures were a strong signal to banks that they should make use of their existing capital buffers to continue to provide key financial services and absorb losses while avoiding abrupt and excessive deleveraging that would be harmful for the economy.
In my remarks today, I will focus on two key challenges which have become increasingly relevant in recent years and which should be part of our reflections on the future of macroprudential policy after the COVID-19 pandemic. These challenges relate to the creation of what we call “macroprudential space” and to the complementarities between monetary policy and macroprudential policy in a monetary and banking union. As I will argue, addressing these two challenges will increase the effectiveness of the macroprudential framework and strengthen the resilience of the euro area banking sector to major unexpected shocks in the future.
Macroprudential space
The experience of the initial phase of the pandemic illustrated the importance of having sufficient releasable capital buffers in the banking sector. When the pandemic struck in early 2020, macroprudential authorities in the euro area had little room for manoeuvre to release macroprudential capital buffers. Only seven euro area countries (including the three home countries of my fellow panel members) had enacted or announced a countercyclical capital buffer requirement above zero. In the euro area banking sector as a whole, countercyclical capital buffer requirements accounted for only 0.2% of risk-weighted assets at the end of 2019. By contrast, structural buffer requirements, comprising the capital conservation buffer, systemic risk buffers and buffers for systemically important institutions, stood at 3.4%. Unlike the countercyclical capital buffer, structural buffers were in principle not designed to be releasable. But, unlike minimum requirements, buffers are there to absorb unexpected losses and to help sustain lending under stress conditions. In short, the fact that only a tiny fraction of capital buffers has been explicitly releasable limited the macro-financial stabilisation function of macroprudential policy.
Banks’ reluctance to dip into their existing buffers seems to be driven by a desire to avoid market stigma and to keep some distance from the threshold for automatic restrictions on distributions. This could be an area of concern at the system-wide level, given that recent empirical evidence of bank behaviour during the pandemic suggests that banks are less active in maintaining credit supply if they operate close to the combined buffer requirement. A contraction of the credit supply could compromise the recovery and increase the risks to financial stability. Recent research by ECB staff further suggests that having higher countercyclical capital buffers at the onset of the pandemic, which could have been released during the current crisis, would have led to significantly improved bank lending and reduced the fall in euro area GDP in 2020 without compromising the solvency level of the banking system. [1]
The imbalance between cyclical and structural buffers has gained more attention in the macroprudential debate since the beginning of the pandemic. There seems to be a growing consensus on the need to reassess the current balance between structural and cyclical buffers and to create more macroprudential space that could be used in a system-wide crisis if needed. I strongly welcome this development and encourage further work and discussions on this important topic, including on specific ways to create macroprudential space.
While it would be premature to envisage a certain outcome at this point, I would like to suggest three guiding principles for further deliberations on this topic. First, the creation of macroprudential space should be capital-neutral. In other words, it should be achieved by amending or rebalancing certain existing buffer requirements rather than by creating additional buffer requirements for banks. Second, the additional macroprudential space created in this way needs to have strong governance in order to ensure that capital buffers are released in a consistent and predictable way across countries when facing severe, system-wide economic stress. Third, considerations to create macroprudential space should focus on options that ensure continued compliance with applicable international standards set by the Basel Committee. The capital conservation buffer would be a natural candidate for creating macroprudential space if it was made releasable in a context where these principles were adhered to. Specifically, the possible release of the capital conservation buffer in a system-wide crisis should be centrally governed in the euro area and could be combined with dividend restrictions in order to maintain equivalence with international standards.
Complementarities between macroprudential and monetary policy
The second challenge relates to complementarities between macroprudential and monetary policy. As widely recognised in the literature, policy outcomes can be improved if complementarities between these two policy areas are exploited.[2] For instance, during phases of risk build-up, effective macroprudential policy can unburden monetary policy with respect to financial stability concerns. An advantage of macroprudential instruments in this respect, and which is particularly relevant in a monetary union, lies in the possibility to target the use of instruments towards certain sectors and to address asynchronous business and financial cycles across Member States. Similarly, during phases of risk materialisation, releasing macroprudential policy buffers can support monetary policy via the impact on banks’ credit supply.
Exploiting the complementarities between monetary and macroprudential policy requires a structured approach to the interaction between the two policy areas. In a monetary and banking union, the institutional dimension to the issue requires further reflection in the medium term. Under the current institutional architecture of the monetary and banking union, monetary policy and microprudential policy decisions for significant institutions are taken centrally in the euro area. By contrast, macroprudential policy decisions are primarily taken in a decentralised manner by national authorities, with the ECB only having asymmetric powers for certain instruments, as set out in the SSM Regulation. In particular, the SSM Regulation assigns to the ECB the power to apply more stringent measures or higher requirements for a specific set of instruments defined in the single rulebook.
Based on this institutional setting, a major challenge lies in how to foster a coherent policy mix across macroprudential policies and monetary policy in the euro area, taking into account that assessing the interaction and complementarity is even more important in a monetary union than in a single jurisdiction. A coordinated macroprudential policy response across the euro area is vital to strengthen the impact of policy actions and to support monetary policy, for instance through the release of macroprudential buffers in a system-wide crisis. Greater coordination of macroprudential action across the euro area would also foster timely policy action, reduce fragmentation across national lines and better account for cross-border systemic spillover effects. Furthermore, beyond coordination, the use of selective macroprudential tools at the system-wide level should also be considered, without prejudice to the ability of the national macroprudential authorities to act at the national level to address idiosyncratic shocks.
Looking ahead, I believe we need to reflect on the merits of improving the current governance framework for macroprudential policy in the euro area by complementing it with a centrally managed countercyclical macroprudential tool. More specifically, the reflections should in my view consider an increased role for the ECB’s Governing Council in macroprudential policy, given its special role in and responsibility for both monetary and macroprudential policy in the euro area, as set out in the Treaties and in the SSM Regulation.
Conclusions
Macroprudential policy has helped to mitigate the short-term impact of the pandemic on the euro area economy, alongside monetary, fiscal and other prudential policies. The COVID-19 crisis also illustrated the benefits of releasable bank capital buffers, supporting the case for rebalancing between releasable and structural capital buffer requirements to create macroprudential space in the near term. The post-pandemic period will also provide an opportunity to reflect on ways to make macroprudential policy more effective. In addition to possible changes to macroprudential instruments, these considerations should touch upon the governance of macroprudential policy in the European monetary and banking union in order to make best possible use of the complementarities between monetary and macroprudential policy.
Compliments of the European Central Bank.
The post ECB | Speech: Macroprudential policy after the COVID-19 pandemic first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Christine Lagarde, President of the ECB, at the “Jahresimpuls Mittelstand 2021” of Bundesverband Mittelständische Wirtschaft | Frankfurt am Main, 1 March 2021 |
It is a great pleasure to have the opportunity to speak to you today.
At the ECB we care deeply about connecting with small and medium-sized enterprises (SMEs), since they are the foundation of the European economy.
SMEs make up 99.8% of all non-financial companies in the EU, provide 66.6% of jobs and generate 56.4% of added value.[1] It is decisions by companies like yours to invest, hire and innovate that put the European economy on a path to growth.
But in Germany, being part of the Mittelstand has a special quality that is about much more than the firm’s size. It is about the philosophy of how to do business and the spirit of management. As Ludwig Erhard said, what defines the Mittelstand is “eine Gesinnung und eine Haltung”[2], how one acts and behaves in society.
This way of doing business has brought tremendous economic success. Of the 2,700 “hidden champions” worldwide – SMEs that are leaders in niche markets – almost half are part of the German Mittelstand.[3]
And it has also helped to pull Germany through times of great crisis.
The Mittelstand was central to the country’s Wirtschaftswunder after the Second World War. It was critical to Germany’s swift bounceback from the global financial crisis in 2008. And, when we rebound from the shock of the pandemic, the Mittelstand will have to be one of the drivers once again.
The coronavirus is a double economic shock. Its effects have hit activity extremely hard, with GDP falling by 6.8% in the euro area last year and 5% in Germany. But it has also accelerated structural changes that will transform our lifestyles and our economies.
According to some estimates, the pandemic has brought forward the digital transition in Europe by seven years.[4] And it is estimated that 20% of work hours will move permanently from office to home.[5] This will lead to new patterns of demand and new ways of living.
So, our challenge will not only be to recover from the crisis, but also to adapt to the changes it has set in motion. And the Mittelstand – thanks to its agility, its focus on innovation and its commitment to competing by adding value – will have to be at the heart of this process.
For now, however, the pandemic is still weighing heavily on our economies, and especially on firms in the services sector. While manufacturing has recovered quite well since the first lockdown last year, buoyed by solid global demand, activity in the services sector has remained subdued owing to the social distancing measures that are still in place today.
This particularly affects SMEs, because they make up an outsized share of firms in the sectors worst-affected by the crisis and they employ around 75% of the people working in those sectors.[6] So it is no surprise that many SMEs in Europe were put at risk of liquidity problems.[7]
But the recession we have gone through is not a typical one. Firms have been hit by a public health crisis that affects them indiscriminately, irrespective of whether they are the best or worst performers.
That is why policymakers had to step in. They had to prevent an unjustified loss of capital, jobs and incomes that would have deeply damaged our economic potential.
Essentially, what many firms needed was a bridge to the other side of the pandemic – support to pay wages and cover bills until they can do so again themselves. So the policy response has been about putting that bridge in place.
Fiscal policy has rightly taken the lead, because it can be targeted at the firms and sectors most exposed to the crisis. And it has, on the whole, been effective. In Germany, more than six million people were enrolled in the “Kurzarbeit” scheme during the first lockdown last April, which was more than four times the peak during the global financial crisis.[8]
But it was also crucial that SMEs did not face a credit crunch at the very moment when their revenues were drying up. And for that they needed finance.
Just like households, entrepreneurs can be savers and investors, but also employers and borrowers that depend on access to loans. SMEs in particular rely on funding from banks, since they typically do not access capital markets. Over the last decade, 43% of external finance for SMEs in the euro area has come from bank loans – double the share for large firms.[9]
So when the lockdowns began, SMEs across Europe turned to banks to meet their liquidity needs – and it was vital that a cheap and elastic supply of credit was available.
This is where the ECB stepped in. We monitor SMEs’ access to finance very closely, including through a special Europe-wide survey. And we took a series of measures specifically designed to help channel credit to firms in need.
First, we launched our pandemic emergency purchase programme (PEPP), which helped stabilise financial markets. That was crucial to ensure that bank lending rates did not tighten suddenly, since bank loans are priced off sovereign borrowing costs.
Second, we recalibrated our targeted longer-term refinancing operations (TLTRO III), lending to banks at the lowest rate we have ever offered, but only on the condition that they used the funds to lend to firms. Banks have taken up €1.7 trillion in these operations so far.
To access that liquidity, banks have to provide collateral, so we also decided to make loans to smaller businesses and the self-employed eligible as collateral for our operations. This encourages banks to grant loans to SMEs and refinance them by borrowing from the ECB.
In parallel, our supervisory arm ensured that there were no prudential barriers to banks acting quickly, which freed up €120 billion in bank capital for new lending.
And fiscal authorities complemented our efforts, making available wide-ranging loan guarantees and other liquidity support measures – equalling close to 20% of euro area GDP. This was crucial to mitigate the higher credit risk banks face when lending to SMEs during a recession.
As a result, from March to May last year, bank lending to euro area firms rose by the largest amount on record. And it was SMEs that benefited the most from both cheap and abundant credit.
Lending rates on very small loans – which are a proxy for lending to SMEs – declined substantially, with firms able to borrow at the lowest rates ever recorded – below 2%.[10] And, since March, €730 billion in new small loans have been granted to SMEs in the euro area, including €138 billion to SMEs in Germany.
Our policies were key to achieving that outcome. Banks taking part in our TLTROs saw a considerable increase in their credit growth, with loans rising by over €400 billion in the year up to September. And this dovetailed with government loan guarantees to funnel credit to SMEs, which received more than 70% of all the guaranteed loans granted.[11]
The upshot is that more firms have been protected and more jobs have been saved. Without the ECB’s policies, we estimate that over one million more people would have lost their jobs.[12]
But we are not out of the woods yet.
With the tremendous progress made on vaccine technology, we can now see the light at the end of the tunnel. But we still cannot see exactly how long that tunnel is. We will continue to face a period of high uncertainty until more people have been vaccinated against the virus.
In this setting, it is crucial that the bridge for SMEs remains in place for as long as needed. The ECB will help ensure that firms and families can access the finance they need to weather this storm – and that they can do so in the confidence that financing conditions will not tighten prematurely.
That commitment is the best way to provide certainty to all sectors of the economy and to bring stability back to the euro area swiftly. And this, in turn, is the best contribution we can make to delivering on our mandate of price stability.
As Goethe said, “Im Idealen kommt alles auf die élans, im Realen auf die Beharrlichkeit an.”[13] Reality is currently hard for many firms and the future remains uncertain. And so we will persist and persevere until the pandemic emergency has passed.
It will take a team effort to get there – from health authorities, from fiscal authorities and from all of you here. But I can assure you that the ECB will continue to play its part, as we have done since the first days of the crisis.
Compliments of the European Central Bank.
The post ECB | Speech: The coronavirus crisis and SMEs first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Statements and remarks 26 February 2021 14:00 by President Charles Michel |
Today we discussed security and defense. We want to act more strategically, to defend our interests and to promote our values. So we need to increase our ability to act autonomously and to strengthen our cooperation with our partners. We are committed to cooperating closely with NATO. A stronger Europe makes a stronger NATO.
We exchanged views with Secretary General Stoltenberg about working together to improve our collective security and the challenges ahead. We also look forward to cooperating with the new US administration on a strong transatlantic agenda, including a close dialogue on security and defence.
Last week, President Biden said: “America is back.” We in Europe are ready – to do our part, to be a strong and reliable partner, not only to the US, but to all our partners like the UN and regional partners. We want to deepen security and defence cooperation among Member States; increase defence investment and enhance civilian and military capabilities and operational readiness.
And as cyber threats increase, we must reinforce our cyber resilience and improve our cybersecurity. In addition, we will step up our cooperation to combat hybrid threats and disinformation. In this context, the High Representative gave an update on a Strategic Compass that will guide our efforts in security and defence.  We intend to adopt this by March 2022. We will continue to review security and defence on a regular basis at the level of the European Council.
Nous avons eu aussi l’occasion de discuter du partenariat méridional sur le plan stratégique et sur le plan politique. Ce partenariat est basé sur une histoire commune et sur une géographie qu’il est tout autant.
We have a number of key priorities: strengthen the resilience of our economies and societies; preserve our collective security; tackle the challenge of mobility and migration; and offer prospects to young people on both sides of the Mediterranean. This should be based on an upgraded and intensified political dialogue across the Mediterranean.
Finally, we look forward to the implementation of the Joint Communication from the Commission and High Representative.
Sur ce partenariat méridional, le débat que nous avons eu ce matin donne un nouvel horizon; une nouvelle ambition sur le plan du dialogue politique, sur le plan de la coopération économique inspirée par nos valeur et nous souhaitons là aussi mettre en évidence nos intérêts stratégiques.
Contact:

 Barend Leyts, Spokesperson for the European Council President | press.president@consilium.europa.eu

Compliments of the Council of the European Union.
The post Remarks by President Charles Michel following the second session of the video conference of the members of the European Council first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.