ESRB published a report on the review of the macro-prudential measures adopted in EU in 2017. The report highlights that most member states took macro-prudential action in 2017, though for the EU as a whole fewer measures were taken than in the previous review period. The most frequently used instruments over the past year were the systemic risk buffer (SyRB), the cap on the loan-to-value (LTV) ratio, and the countercyclical capital buffer (CCyB).
The report reviews certain trends seen across different instruments and then turns to specific instruments. Three special features focus on structural developments in the banking sector, the related implications for macro-prudential policy, and the use of specific macro-prudential instruments addressing both cyclical and structural risks. The first feature considers the implications of a growing role of bank branches for financial stability and macro-prudential policymaking; the second compares the use of the CCyB across a sample of European countries; and the third provides a similar cross-country analysis of the use of the capital buffer for other systemically important institutions (O-SIIs) to address structural risks posed by systemically important institutions (SIIs).
As there are indications that the financial cycle is turning in some countries, more member states tightened the CCyB. In 2017, four member states activated or increased the buffer rate and there are now seven countries in Europe that decided on a positive rate. Although extensive international and European guidance exists for the use of this instrument, there are large differences regarding key features of the national frameworks. These include the objective of the instrument, the neutral rate, and the indicators used to inform the buffer decision. Additionally, more countries activated the SyRB and now 12 member states have an SyRB in place; some changes in 2017 concerned the level, scope, or phasing-in of the buffer. Regarding the SIIs, most developments were of a rather technical nature, such as changes in the list of SIIs and their buffer rates, reflecting changes in systemic importance, or the adoption of a longer phasing-in period for the buffers. Large differences exist in the calibration of O-SII buffer rates across countries and this reflects the exercise of supervisory judgment and the absence of detailed guidance at the EU level.
Related Link: Report on Macro-Prudential Measures (PDF)
Keywords: Europe, EU, Banking, Systemic Risk, Macro-prudential Policy, CCyB, Systemic Risk Buffer, O-SII, ESRB
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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