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  • TPA Research

What's happening this week? (25/02/19)

Tuesday, 26 February – ECON Committee to vote on loss absorbing capital requirements

On 26 February the ECON Committee will vote on proposals for ‘Loss-absorbing and Recapitalisation Capacity for credit institutions and investment firms’ that have been provisionally agreed through interinstitutional negotiations. This is part of a banking reform package which is updating the Capital Requirements Regulation, the Capital Requirements Directive, the Single Resolution Mechanism and the Bank Recovery and Resolution Directive. EU Ambassadors signed off on the proposals on 15 February, setting the stage for approval by Finance Ministers next month. The Committee’s expected approval of the legislation will allow it to proceed to a European Parliament plenary hearing, provisionally scheduled for 15 April. This should allow for the approval of the reform package prior to the end of the European Parliament’s current term.

While there is wide political agreement on the reforms, there has been less enthusiasm from the regulatory side. In particular the ECB is unhappy that banks will be able to use so called ‘Additional Tier 1’ – that is contingent convertible bonds (CoCos) – towards MREL Pillar II. Despite these concerns, the current text is unlikely to be altered. Instead, the European Commission has assured Frankfurt that its concerns have been noted and that they will be considered in a 2020 review, required as part of the Capital Requirements Directive and Regulation.

Wednesday, 27 February – House of Commons to consider Brexit motions, with Cooper bill in the spotlight

With the next meaningful vote on Theresa May’s Brexit deal set to take place by 12 March – 17 days before the UK is scheduled to leave the European Union – the most significant parliamentary events in the interim will be debates and votes on amendable Brexit motions, with the most significant of these likely to be on a revived motion by Yvette Cooper on extending Article 50 to avoid ‘no deal’.

The 27 February vote is again likely to be close. There is understood to be more Tory party support for Cooper’s proposals than there was in January, giving the bill a good chance of success. While the passage of the bill would diminish the risk of a chaotic Brexit and will accordingly boost markets, it should not be viewed as a complete silver bullet.

Beyond the amendments, interest in Wednesday’s votes will also be focused on how the Independent Group of former Labour and Conservative MPs aligns itself.

Friday, 1 March – Flash Eurozone inflation for February

Eurozone flash inflation figures for February will be assessed for any indication that the currency zone is inching toward more robust price growth.

The minutes of the ECB’s January meeting, published on 21 February, show that the Governing Council (GC) expects price growth to remain stagnant in the coming months, but with faith that it would ultimately pick up. The ECB minutes also reflect on continued uncertainty in the economic data, and the need to not react precipitously to what may be temporary setbacks.

Considering this, it is possible that at the 7 March meeting the GC will want to continue to wait and see on the forward guidance, particularly given that Mario Draghi’s term ends later in the year. Stretching the guidance on rate hikes – clarifying that they may not come until 2020 at the earliest - could be viewed as tying the hands of his successor.

Friday, 1 March – Moody’s to review Greek debt

There is optimism within Greece that Moody’s 1 March review will lead to Greece being upgraded from B3 to B2.

Greece’s public debt management agency (PDMA) has tentative plans to issue 10-year debt on 5 March, hopeful that a ratings upgrade can allow it to can raise €3 billion at an interest rate below 4%. These plans could be put on hold if a Moody’s upgrade fails to materialise.

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