Speech by Commissioner Albuquerque for the 9th Annual Conference of the European Systemic Risk Board

Good morning ladies and gentlemen,

Im very pleased to join you, albeit virtually, for this important conference. I would like to extend my thanks to President Lagarde and Vice-President de Guindos for giving me the opportunity to address you today during your board meeting.

The last time I spoke at your board meeting, we were anticipating news on US tariffs. These are now a reality, bringing a new wave of volatility to our markets.

At the same time, we continue to deal with the illegal Russian aggression in Ukraine and an imbalanced and distorted trade relationship with China, which adds a further layer of risk and volatility.

While markets held up well, despite periods of significant and abrupt adjustments, we have to remain braced for further volatility. This underscores the importance of your work.

It also underscores the importance of our collective ability to allow our strategies to adjust along with the risks.

In a world where international trade and capital movements are being challenged, new geopolitical realities and trade wars can have sizeable spillover effects on financial stability.

While we are expecting moderate economic growth and a decline in inflation, tariffs might still hurt the profitability of EU companies, especially those exposed to extra-EU trade.

This can have knock on effects, as corporate profitability concerns can impact on banks asset quality.

Moreover, the shifting geopolitical landscape has resulted in higher defence spending needs in Europe, which could put pressure on Member State budgets.

We are also witnessing rapid technological developments, including in AI and crypto assets, showing significant opportunities to boost European competitiveness and modernise our financial market infrastructure, while also adding a new layer of complexity, as well as new risks.

Finally, international bodies like the Financial Stability Board and the G20 have stressed the need to address risks coming from Non-Bank Financial Intermediation, or NBFI, especially in terms of how we can identify and mitigate these risks.

To mitigate them, last year the Commission began a review of the macroprudential policy framework for NBFI in the EU.

Fostering more Non-Bank Financial Intermediation is part of the solution towards a more competitive economy and a deeper and more liquid European capital market, which is a core goal of this Commission.

To promote trust and to ensure that NBFI sectors are contributing to the long-term growth of the economy through the financial system, we have identified several policy options which we are exploring.

Firstly, we are considering upgrading the macroprudential oversight to minimise the risk of crisis events stemming from NBFI activities.

We will also look to simplify the overall framework by strengthening regulatory and supervisory convergence and streamlining data collection and sharing.

We also intend to offer more effective and well-coordinated tools to be developed by EU authorities and national competent authorities in case of systemic events.

We have engaged with stakeholders and consulted widely to develop our view and policy goals within the NBFI sector.

We are currently reviewing the feedback from our consultation on macroprudential policies that will inform our future work on scope, timing and priorities of a macroprudential strategy for NBFI.

There is broad agreement that we need to better understand how non-bank financial institutions and banks interact in key funding markets - such as through margin calls and repo financing.

A system-wide assessment of these risks is one option that has received strong support from Member States and stakeholders. At the same time, as financial markets become more complex, we need to get better at detecting risks early. That means stronger coordination and more effective data-sharing between supervisors.

And  we are reviewing whether todays rules give us the right tools to respond. This includes looking at how to address liquidity mismatches in investment funds, and how to ensure supervisors across Europe take a consistent approach when using macroprudential tools.

A more holistic and system-wide approach to monitoring financial risks depends on the work of the ESRB as the EUs macroprudential authority. To do this effectively, the ESRB must be able to make full use of data already reported by financial institutions - something underlined by the High-Level Group chaired by Governor Olli Rehn.

That Group has also put forward recommendations to strengthen the ESRBs role, which we welcome and take seriously. We now look forward to the ESRBs work on how these ideas can be implemented in the upcoming review of its founding regulation.

I gave you already an overview of our strategy to finance a more competitive and innovative Europe, known as the Savings and Investments Union, or the SIU for short. Let me just emphasise a few ideas in this regard.

Stronger, integrated markets across Europe would allow companies to grow beyond national borders and attract long-term investment.

Deeper capital markets can help Europes innovators scale up, compete globally, and turn ideas into European success stories.

But Europes capital markets remain fragmented across national borders. My focus is on breaking down those barriers, so that our businesses and citizens can reap the full rewards.

As part of this drive for a more competitive economy, we are also working to simplify financial regulation, while preserving regulatory objectives and avoiding a race-to-the-bottom with international partners. 

NFBI reforms play also a role in deepening and reinforcing our markets, notably by providing stable and resilient financing.

Overall, rest assured that we will continue to evaluate options to enhance the macroprudential framework with a holistic view across the financial system, as we build the foundations for a successful and long-lasting Savings and Investments Union.  

Thank you.