EBA Observed An Increasing Encumbrance Ratio In 2021 Albeit With Some Signs Of Stabilisation

• Following the outbreak of the COVID-19 pandemic, the encumbrance ratio continued an upward trend but remained roughly stable in the second half of 2021.
• Banks kept making extensive use of central bank funding and more than 50% of their central bank eligible-assets and collateral are now encumbered.
• Increasing encumbrance ratios might lead to adverse feedback loops of higher encumbrance and higher funding costs.

The European Banking Authority (EBA) published today its annual Asset Encumbrance Report. The Report highlights that banks continued to make extensive use of central bank funding in 2021. As a result, the overall encumbrance ratio rose by 2.2 percentage points in 2021 to 29.1%.

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