Europe Wants Banks to Ease Energy Crisis Without Falling Victim

Article content

(Bloomberg) — Europe’s top markets watchdog said she’s looking at ways banks can help utilities shoulder massive margin calls to keep trading power and gas, without the lenders also becoming victims of the energy crisis.

Article content

“We believe we need to look at this very carefully to ensure we are not transferring risk from the energy markets into the financial markets,” Verena Ross, who leads the European Securities and Markets Authority, said in an interview with Bloomberg TV’s Francine Lacqua. 

Article content

Energy markets have been sent haywire after Russia curtailed flows of gas in response to sanctions over the war in Ukraine. Authorities in the region have been forced to bail out utilities and consider how changes to the rules for trading could ease the financial burden on energy supplies. 

Read More: How Power Trading Tries to Keep Lights On in Europe: QuickTake

ESMA is looking at whether banks can offer uncollateralized pledges of credit to energy traders to help them meet margin calls at exchanges, also known as central counter parties, said Ross. 

Article content

“But we believe that should only be possible under very strict conditions on a temporary measure, making sure there’s proper concentration limits, proper ability of the CCP to realize these guarantees if it comes to that,” she said. “So this needs to be again very carefully calibrated to ensure we are not creating risks for financial stability.”

Read More: European Watchdog Backs More Regulation of Commodity Traders (1)

Ross also said that her peers at European banking regulators also have measures in place “to ensure that banks properly manage their risks including large exposures.” ESMA would seek too cooperate with those authorities to avoid any new flexibility on collateral from creating risks for the banks or the exchanges, she said.