Highlights European systemically important banks (or EU GSIBs1)continued to improve their solvency positions during thequarter. In 3Q16, EU GSIBs achieved the largest quarterly increase inCET1 ratio since 2014, equating to an increase of c48bpsfrom 11.99% in 2Q16 to 12.47% in 3Q16. The increase in solvency ratios was largely explained by asubstantial decrease in RWAs of 4.1% QoQ. Around 42% ofthis variation can be attributed to changes in the regulatorytreatment of a large foreign operation of one bank (€108bndecrease of a total of €254bn RWA decrease of all EU GSIBsduring the quarter). Other factors such as asset disposal, FXvariations and balance sheet de-risking also contributed tothe RWA decrease during the quarter (see charts 1.4-1.6 inthe report for further detail). The decrease in RWAs illustrate the continued balance sheetrestructuring of banks to comply with CRDIV. This, in avolatile macro-environment which has not been favourablefor capital raising through marketsand as ultra-low interest rates limit a faster accumulation ofcapital through internal generation.

Highlights Equity underwriting on European exchanges accumulated a total of €26.9 bn in proceeds in 3Q 2016, a 47%decrease from the value originated in 2Q 2016 (€50.9 bn). Equity underwriting encompasses Initial Public Offerings (IPOs), convertible securities and follow-on offerings. Year-to-date (YtD), equity underwriting decreased 37% from €169 bn in the first three quarters of 2015 to €106.5 bn in 2016. Mergers and Acquisitions (M&A) of European companies totalled €180 bn in 3Q 2016, a decrease of 18.9% from the value observed in 2Q 2016 (€ 221.8 bn). In the first three quarters of 2016, M&A transactions accumulated €682bn in deal value, an increase of 9% from the same period of 2015 (€626.4 bn). Equity trading activity on European main markets and MTFs generated a total of €2.6 tn in turnover value in 3Q 2016, a decrease of 13% from the value traded in 2Q 2016 (€ 3.33 tn). On a year-to-date basis, equity turnover decreased 11% from the value traded in the first three quarters of 2015 (from €10 tn to €8.9 tn). Market capitalisation of European listed shares stood at € 11.5 tn at the end of 3Q 2016, an increase of 3.9% from 2Q 2016 (€11.1 tn) and an increase of 1.3% from the market value of a year ago (€12.4 tn).

Highlights In Q3 2016, EUR 40.2 billion of securitised product was issued in Europe1, a decrease of 46.4% from Q2 2016 (EUR 75.0 bn) and a decrease of 30.2% from Q3 2015 (EUR 57.6 bn)2 Of this, EUR 16.0 billion was placed, representing 39.8%, compared to EUR 29.3 billion placed in Q2 2016 (representing 39.1% of 75.0 EUR bn) and EUR 18.6 billion placed in Q3 2015 (representing 32.3% of 57.6 EUR bn) In Q3 2016, UK RMBS led placed totals followed by Pan European CLOs and Dutch RMBS: UK RMBS decreased from 11.6 EUR bn in Q2 2016 to 3.7 EUR bn in Q3 2016; Pan European CLOs decreased from 4.6 EUR bn in Q2 2016 to 3.4 EUR bn in Q3 2016; Dutch RMBS increased from 1.0 EUR bn in Q2 2016 to 2.9 EUR bn in Q3 2016.

Highlights Issuance: European leveraged finance issuance (leveraged loans and high yield bonds) increased in 2Q’16 to €52.1 billion, a 22.0% increase from €42.6 billion in 1Q’16 and a 6.5% decrease from €55.7 billion in 2Q’15. The quarterly surge stems from the large increase in high yield bonds issuance, whichincreased by 195.6% in the second quarter of 2016 while leveraged loan issuance decreased by 36.3%; the high yield bond share of the leveraged finance market increased to61%, up from 25.2% in 1Q’16 and up from 54.8% in 2Q’15. Market and Economic Environment: According to the July 2016 European Central Bank lending survey, in the second quarter of 2016, improving loan supply conditions for enterprises and the continued increase in loan demand across all loan categories suggested an ongoingrecovery in loan growth. The net easing on credit standards for loans to enterprises in 2Q’16 was stronger than the historical average calculated over the period since the start of the survey in 2003. Competition remained the main factorbehind the net easing of credit standards on loans to enterprises while risk perceptions and banks’ reduced cost of funds contributed only marginally to such easing. Issuance: Leveraged Loans: Leveraged loan issuance, including first lien, second lien, and mezzanine financing, decreased in the second quarter of 2016 to €20.3 billion, down 36.3% q‐o‐q (€31.9 billion in 1Q’16) and 19.2% down y‐o‐y (€25.2 billion in 2Q’15). Issuance: High Yield Bonds: Primary high yield issuance in 2Q’16 totalled €31.8 billion on 55 deals, a 195.6% and 4% increase by euro amount, respectively, from 1Q’16 (€10.8 billion on 22 deals) and2Q’15 (€30.5 billion on 58 deals). High yield bond issuance increased in both developed and emerging market Europe in the second quarter of 2016. Returns & Credit Quality:The U.S. HY Distressed Index led returns in the second quarter of 2016 with 21.6% followed by Global Fallen Angel HY Index (6.5%) and U.S. HY (5.9%). Nineteen out of 20 assetclasses examined recorded positive returns while Euro HY CCC and lower rated bonds (‐0.8%) recorded losses in 2Q’16.

Highlights European systemically important banks (or EU GSIBs 1) have continued to improve their solvency positions notwithstanding the challenging market environment of the first half of the year. In 1Q16, the unfounded concerns on the capacity of some banks to service AT1 coupon payments hit bank valuations and contingent-convertible (CoCo) prices. The market volatility episode was short-lived, with CoCo prices and option-adjusted spreads swiftly recovering during the second part of 1Q16. In 2Q16, European equity prices fell in the aftermath of the UK referendum result, with European bank share prices falling by c21% in the two days after the referendum result was confirmed. European banks endured two real-life stress tests in less than six months, in the context of ultra-low interest rates and increased net-interest margin pressure. Yet, banks continued to improve their solvency positions via a combination of balance sheet restructuring and a build-up of capital buffers.

In Q2 2016, EUR 74.5 billion of securitised product was issued in Europe1, an increase of 30.9% from Q1 2016 (EUR 56.9 bn) and an increase of 49.3% from Q2 2015 (EUR 49.9 bn)2 Of this, EUR 29.1 billion was placed, representing 39.1%, compared to EUR 14.3 billion placed in Q1 2016 (representing 25.1% of 56.9 EUR bn) and EUR 28.4 billion placed in Q2 2015 (representing 56.9% of 49.9 EUR bn) In Q2 2016, UK RMBS led placed totals followed by German Auto ABS and Pan European CLOs: UK RMBS increased from 5.8 EUR bn in Q1 2016 to 11.6 EUR bn in Q2 2016; German Auto ABS increased from 0.65 EUR bn in Q1 2016 to 4.6 EUR bn in Q2 2016; Pan European CLOs increased from 2.6 EUR bn in Q1 2016 to 4.6 EUR bn in Q2 2016.

Highlights Equity underwriting on European exchanges accumulated in 2Q 2016 a total of € 50.7 bn in proceeds, an increase of 76% from the value originated in 1Q 2016 (€ 28.7 bn) and a decrease of 18% from the value of 2Q 2015 (€62.1 bn). Equity underwriting encompasses Initial Public Offerings (IPOs), convertible securities and follow-on offerings. Mergers and Acquisitions (M&A) between European companies1 totalled € 51.8 bn in 2Q 2016, a decrease of 68% from the value observed in 1Q 2016 (€ 164.7 bn) and a decrease of 50.1% from the volume of 2Q 2015 (€ 103.9 bn). Equity trading activity on European main markets and MTFs accumulated in 2Q 2016 a total of € 3.0 tn in turnover value, a decrease of 8.9% from the value traded in 1Q 2016 (€ 3.33 tn) and a decrease of 9.1% from the value traded in 2Q 2015 (€ 3.33 tn). Market capitalisation of European shares stood at € 11.2 tn at the end of 2Q 2016, a decrease of 1.8% from the value observed in March 2016 (€ 11.4 tn) and a cumulative decrease of 10.2% from the market capitalisation in June 2015 (€ 12.4 tn).

Market Highlights and Commentary Market Environment Economic conditions According to Eurostat, GDP rose by 0.3% quarter-over-quarter(QoQ) in the Euro zone (EU19) and by 0.4% in the EU28 duringthe second quarter of 2016. The unemployment rate stood at10.1% (EU19) and 8.6% (EU28) as of the end of June 2016, thelowest rate recorded since 2011 (EU19) and 2009 (EU28). Term Issuance and Outstanding Volumes In Q2 2016, EUR 74.5 billion of securitised product was issued inEurope, an increase of 31.0% from Q1 2016 (EUR 56.9 billion) andan increase of 49.2% from Q2 2015 (EUR 49.9 billion). Of the EUR74.5 billion issued, EUR 29.1 billion was placed, representing39.0% of issuance, compared to EUR 14.3 billion placed in Q12016 (representing 25.2%) and EUR 28.4 billion placed in Q22015 (representing 56.8%). For the second quarter, UK RMBS continued to lead placed totals(EUR 11.6 billion), followed by German auto (EUR 4.6 billion) andEuropean CLO (EUR 4.6 billion). Notably, the first peer-to-peer /marketplace lending securitisation appeared in Europe, a UK SMEdeal comprised of loans funded through the Funding Circleplatform. Net issuance was positive for the first time since the third quarterof 2014, with EUR 1.271 outstanding at the end of 2Q’16, up fromEUR 1.267 trillion at the end of 1Q’16. Of this, approximately EUR733.7 billion, or 57.7%, was retained. Credit Quality In Europe, upgrades outpaced downgrades in Q2 2016 amongEuropean securitised product, with upgrades concentrated inEuropean CLOs and prime RMBS. ABCP Trends European asset backed commercial paper (ABCP) issuance wasEUR 120.1 billion in Q2 2016, an increase of 25.3% QoQ and 16.7% YoY. Multiseller conduits continue to dominate as thelargest category of issuer in the ABCP market, particularly fromIreland and France. European ABCP outstandings decreasedslightly from the previous quarter, ending the second quarter atEUR 15.3 billion, down by 14.7% from EUR 17.9 billion in Q12016.

Issuance highlights European leveraged finance issuance (leveraged loans and high yield bonds) decreased in 1Q’16 to €22.6 billion, a 12.0% decrease from €25.6 billion quarter-over-quarter (q-o-q) and a 62.5% decrease from €60.1 billion in 1Q’15. The quarterly decrease stems from the large fall in high yield bonds issuance, which decreased by 24.1% in the first quarter of 2016 while leveraged loan issuance increased by 2.9%; the high yield bond share of the leveraged finance market decreased to 47.3%, down from 54.9% in 4Q’15 and down from 62.8% in 1Q’15. Market and economic environment According to the April 2016 European Central Bank lending survey, in the first quarter of 2016, improving loan supply conditions for enterprises and the continued increase in loan demand across all loan categories suggested an ongoing recovery in loan growth. The net easing on credit standards for loans to enterprises in 1Q’16 was stronger than the historical average calculated over the period since the start of the survey in 2003. Competition remained the main factor behind the net easing of credit standards on loans to enterprises while risk perceptions and banks’ reduced cost of funds contributed only marginally to such easing. Across firm size, credit standards were eased more strongly for loans to large firms than to small and medium-sized enterprises. For the large euro area countries, credit standards on loans to enterprises eased in Italy and Germany, while remaining unchanged in Spain and the Netherlands and continuing to tighten in France in net terms. Credit standards on housing loans tightened and remained below the historical average since 2003. The net tightening was largely driven by the implementation of the EU mortgage credit directive and by a net tightening impact of banks’ risk tolerance. Looking ahead to the second quarter of 2016, euro banks expect a further net easing in standards on loans to enterprises and consumer credit but continued net tightening of standards for housing loans. Net demand increased for all types of loans in 1Q’16 and banks forecasted a further net increase in the demand for loans in the second quarter.

Market highlights and commentary According to Eurostat, GDP rose by 0.6% quarter-over-quarter (QoQ) in the Euro zone (EU19) and by 0.5% in the EU28 during the first quarter of 2016. Unemployment was 10.2% (EU19) and 9.7% (EU28) as of the end of March 2016, the lowest rate recorded since 2011 (EU19) and 2009 (EU28). Term Issuance and Outstanding Volumes In Q1 2016, EUR 56.9 billion of securitised product was issued in Europe, a decline of 20.4% from Q4 2015 (EUR 71.4 billion) but an increase of 61.2% from Q1 2015 (EUR 35.3 billion). Of the EUR 56.9 billion issued, EUR 14.3 billion was placed, representing 25.2% of issuance, compared to EUR 15.6 billion placed in Q4 2015 (representing 21.8%) and EUR 19.7 billion placed in Q1 2015 (representing 55.9%).For the first quarter, UK RMBS continued to lead placed totals (EUR 5.8 billion), followed by European CLOs (EUR 2.6 billion) and Dutch RMBS (EUR 1.8 billion). Net issuance remained negative, with EUR 1.27 trillion outstanding at the end of 1Q’16, down from EUR 1.30 trillion at the end of 4Q’15. Of this, EUR 718.1 billion, or 56.8%, was retained.