EBA looks at asset encumbrance in EU banks

30 September 2015

The European Banking Authority (EBA) published today its first analysis of asset encumbrance among EU banking institutions. This preliminary analysis will provide important elements for EU supervisors to assess the sustainability of banks funding structures. It shows there is no indication of a general increase in the level of asset encumbrance over recent years across EU banking institutions. The report will be published on a yearly basis in the future, as data quality improves with the full establishment of reporting requirements for asset encumbrance, a key component of risk management policies and decision making processes in the EU banking sector.
 
The EBA preliminary analysis shows that in March 2015 the overall weighted average encumbrance ratio was 27%, but highlights a wide dispersion across institutions and countries. On the basis of a comparison with a similar report released by the European Systemic Risk Board (ESRB) in 2011, there is no indication of an increase in the level of asset encumbrance over the past years across EU banking institutions.
 
The EBA, however, intends to monitor on a yearly basis trends in the level of total asset encumbrance, the availability of collateral for central bank funding and the use of central bank funding. Streamlined information will help EU banking supervisors assess how banks can handle funding stress and switch from unsecured to secured funding under stressed conditions.
 
The report issued today was carried out on the basis of data on asset encumbrance received in 2015 from a sample of almost 200 EU banks. The analysis should be seen as preliminary, while the reporting process for asset encumbrance becomes fully established among EU banking institutions. In line with the EBA's implementing technical standards on asset encumbrance from October 2013, asset encumbrance should be considered a key component of risk management policies and decision making processes in the EU banking sector.