ECB calls for non-bank stress tests

In an initiative that could catch private debt managers, European central bankers want to extend stress tests to systemically important non-banks. 

Stress tests for non-bank lenders, including potentially private debt firms, will be a focus for European authorities over the coming months, the European Central Bank (ECB) vice president Victor Constancio signaled at the monthly ECB news conference this week.

The current regulatory framework, focused on the banking sector, would need to be strengthened and extended to systemically important non-banks and non-insurers, to make financial stability more resilient, he said.

Instruments should be extended in two ways to reduce contagion between banks and non-banks and to promote financial integration, as part of a proposed Capital Markets Union.

“First, it is necessary to intensify the supervision of systemically important non-bank institutions. We need to curtail risks from these systemic players and raise their resilience through the financial cycle,” Constancio said at the conference.

The Financial Stability Board (FSB) has taken the first steps in this direction already, he said. It is currently in the process of developing a common methodology to identify systemically significant non-bank and non-insurers. It is also working on the systemic risks in the asset management industry, Constancio added.

A spokesman for the ECB told sister title PDI that the European Commission is expected to present draft laws on the CMU later this year, and that stress tests of insurers or other non-bank institutions cannot be ruled out.


The current bank framework, referred to as macro-prudential policy, will be used to monitor and eventually counter systemic risks by extending its toolkit, Constancio said, specifically including: additional liquidity requirements, guided stress tests, minimum and time-varying loan, and redemption fees. Also, well defined limits to leverage will be needed, he added. Other measures concern activities in the market-based financial sector, he continued. Risks are understood to be building up in central counterparty clearing houses, which at present are also considered non-banks.

Tests currently focused at bank level are not implemented in an equal way across the European Union, Constancio suggested, adding that this would need to be addressed through the continuous exchange between national authorities and the ECB. Other aspects will require legal changes, which should become clearer when a European Commission report on the revision of the macro-prudential regulatory framework for consultation is available. A deadline for feedback on the CMU green paper is scheduled for May 16.