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April 27, 2018

ECB published an article that explains the key messages of ECB on the EC proposals that important for macro-prudential regulation and policy. The EC proposals for the reform of EU banking rules aim to complete the post-crisis reform agenda and to address shortcomings in the current regulatory framework, notably in the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV). ECB considers that the ongoing discussions on the CRR and CRD IV package provide an opportunity to make targeted changes to the macro-prudential toolkit to make it more efficient and consistent.

A comprehensive review of the macro-prudential framework is needed to integrate lessons learned on the use of tools and to reflect the changes in the institutional setup. The ongoing discussions on the banking package provide an opportunity for targeted changes to the macro-prudential toolkit, before a broader review is conducted in the medium term. The article focuses on possible targeted changes to the existing toolkit to enhance the effectiveness of the toolkit; it also proposes avenues to be considered in the context of a broader review to be conducted in the medium term. In the absence of a comprehensive review of the EU macro-prudential framework in the short term, targeted changes should be introduced in the context of the CRR and CRD IV review.

Once implemented, the changes to CRR and CRD IV will strengthen the regulatory architecture in the EU, thus contributing to the reduction of risks in the banking sector and paving the way for commensurate progress in completing the banking union. As part of its contribution to the EC consultation on the macro-prudential review, ECB called for the following:

  • The delineation of the roles and responsibilities of macro- and micro-prudential authorities, including restriction on the use of Pillar 2 solely for micro-prudential purposes and strictly on an institution-by-institution basis
  • The elimination of overlaps among instruments and greater flexibility in the capital buffer framework
  • The streamlining of activation procedures, where these do not add value in terms of safeguarding the Single Market
  • Provision of a review clause to allow for further adjustments in the future

Related Link: ECB Article

Keywords: Europe, EU, Banking, Macro-prudential Framework, CRR/CRD, Pillar 2, Capital Buffers, ECB

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