On 31 May 2023, the National Bank of Belgium published its Financial Stability Report and its Macroprudential Report. Recent macroprudential policy decisions have been taken in an uncertain environment characterised by a clear tightening of monetary policy. Rising interest rates have led to a turning point in the credit and real estate cycles. The first half of 2023 was also characterised by turmoil on the financial markets amidst concerns of vulnerabilities in certain segments of the US and Swiss banking sectors. In this regard, the Belgian banking and insurance sectors proved resilient. Belgian banks are indeed different in certain important respects from the US and Swiss institutions which had to be supported. There is however no room for complacency as risks that remained below the waterline when interest rates were low could materialise. Against this backdrop, macroprudential policy in Belgium has a number of objectives: to operate in a countercyclical manner while preserving the resilience of the Belgian financial sector and to encourage the maintenance of sound lending policies without unduly curbing credit cycle dynamics. The reports’ recommendations highlight, amongst other issues, the role to be played by the financial sector in supporting the economy and the need for banks and insurance companies to continue to prudently manage the interest rate and liquidity risk inherent in a period of rising interest rates.
In recent years, the macroeconomic environment has presented plenty of challenges. The Belgian and, by extension, European banking sector was able to meet these challenges well. This in terms of both solvency and liquidity. It will continue to be a challenge to keep credit risks at a healthy level. Furthermore, it remains an urgent matter for the sector to invest in solutions that ensure a low-carbon, sustainable and foremost social planet. Profitable banks can build up buffers to overcome lesser periods and keep investing in their clients and in digitization. Regulators and legislators should take this into account when aiming for common goals: financial stability in a thriving society.
On June 29th, 2023, Ms Fabregas Fernandez, director at the Recovery and Resilience Task Force at the European Commission, presented the state of the Recovery and Resilience Plans of Member States. She is in charge of the Recovery and Resilience Plans of 12 Member States and is therefore well placed to present the implementation of the 27 Member States of the European Union.
This article highlights the main topics.
This paper builds upon a presentation of the state-of-play of the National Recovery and Resilience Plan (“NRRP”) of Belgium delivered by Secretary of State Dermine at the National Bank of Belgium on 29 June 2023. It also covers more widely the topic of the financing of strategic investments in Belgium and Europe, including beyond the term of the Resilience and Recovery Facility (“RRF”) at the end of 2026.
This is the non-technical summary from the ECB occasional paper published in March 2023 by the international Relations Committee workstream on Open Strategic Autonomy. This report was extensively presented by Isabel Van Steenkiste, Director General for International Affairs ECB, during an event at the National Bank of Belgium, June 12th, 2023.
Driven by the European regulatory framework or by conviction, the financial sector is taking greater account of climate and societal issues. However, the complexity of regulatory constraints, ESG data management and lack of expertise make ESG integration very complex and costly for investors. Furthermore, the impact of ESG risks and opportunities on the price of financial assets, or the price associated with negative externalities, remains difficult to quantify.
But these challenges must be met, and finance is expected to contribute to the building of a more sustainable and fairer world. Ethias and HEC ULiège intend to play an active role in this evolution. The two players have just renewed their partnership that celebrates its 2nd anniversary. The extracts from their work presented in this article demonstrate the usefulness of combining academic research with practical experience, in order to advance the investor's integration of sustainability.
This article discusses the landmark 2022 United States Inflation Reduction Act (IRA) and the EU’s response so far. First, it lays out the main clean energy provisions of the US IRA, their underlying objectives, and the projected impacts. Second, the article examines the EU’s concerns with the IRA and assesses the resulting policy initiatives of the European Commission proposed under the umbrella of the Green Deal Industrial Plan. While US and EU preferences and policy choices are clearly different, more international cooperation − between them and with others − will be needed for a successful green transition.
The elevated macroeconomic uncertainty due to subdued economic growth, inflationary pressures and increasing interest rates have brought into the forefront some risks in the global banking sector. In the aftermath of the banking crisis in the US and the takeover of Credit Suisse from UBS, EU banks are now confronted with a growing number of challenges. The article examines the level of preparedness of the EU banking sector to navigate these challenges taking into account the robust starting point of the EU banks.
After a long period of low interest rates, many European banks have let their business model evolve towards a greater diversification of revenues and lower interest rates protection. The sector has proven its resilience during the Covid-19 and the geopolitical crises. Nowadays, with the simultaneous surge of inflation and consciousness about environmental dangers, banks are confronted with an unprecedented challenge. They have to cope with re-emerging or original sources of financial risks. These include stock market risks (due to their off-balance sheet asset management activities), funding risk (due to the pass-through of the rising interest rates on liabilities), ESG risks (on the valuation of the banks’ assets), and credit risk (due to the cost of the climate transition and the tension between the ‘E’ and the ‘S’ dimensions). This will increasingly lead banks to move away from comfortable risk management tools, and develop competences and approaches to deal with uncertainty, potentially for a long period of time.
This paper examines policy options for reducing debt ratios, including the effects of fiscal consolidation and debt restructuring. We find that adequately timed and designed fiscal consolidations have a high probability of durably reducing debt ratios. In addition, the impact of restructuring on debt ratios is sizable and long lasting but can be affected by operational details and institutional features.