MNI BRIEF: SSM To Sharpen Focus, Increase Pressure - Enria

Deteriorating asset quality, stresses caused by the search for yield, along with climate and cyber risks will form the focus of banking supervisory priorities in future, ECB Supervisory Board chair Andrea Enria and Director of Supervisory Strategy and Risk Mario Quagliariello wrote in a blog post Tuesday, in which they pledged to place greater pressure on financial institutions.

The gradual withdrawal of public support measures and downside risks to the euro area economic recovery is leading to a deterioration in the quality of banks’ assets, they write, while NPLs in the sectors most vulnerable to the Covid-19 pandemic are increasing.

Markets are becoming complacent about the risks associated with searching for yield in a prolonged low-interest environment, they add, leading to stretched valuations disconnected from economic fundamentals. Exposure to riskier counterparts has also increased, in particular among non-bank financial institutions.