ESRB published a report that examines developments in the macro-prudential policy framework in EU during 2019. The report discusses the macro-prudential measures—for both banks and non-banks—that were adopted or were in place in 2019. Non-banking sectors covered include insurance, pension schemes, asset management and investment funds, and financial market infrastructure. The report also provides an update on the release of the countercyclical capital buffers (CCyBs) and the re-calibration or removal of other capital buffers for banks in the light of the COVID-19 pandemic. In 2019, most macro-prudential measures were taken to address arising or prevailing cyclical risks in the banking sector.
The report describes the changes in policy frameworks at both the EU and the national levels. It outlines the national macro-prudential measures to target risks in banking that were adopted in 2019. It first reviews certain trends seen across different instruments and then turns to specific instruments. Further, the report covers risks beyond banks and the related policies. Some member states passed legislation to broaden the toolkit available in their jurisdictions and developed analytical frameworks. This included bringing a macro-prudential perspective to micro-prudential regulation; designing recovery and resolution frameworks; and developing macro-prudential tools to target systemic risk.
The report also consists of four special features. The first feature (Special Feature A) describes the new role that ESRB has been given by the Capital Requirements Directive (CRD) 5 and Capital Requirements Regulation (CRR) II with respect to coordinating macro-prudential policies and acting as a notification hub. The second feature (Special Feature B) sets out the framework for monitoring material third countries for the purpose of potentially setting a CCyB for exposures of EU banks to such countries. The third feature (Special Feature C) describes the analytical framework for assessing cross-border effects of macro-prudential policy as developed by ECB. The fourth and final feature (Special Feature D) considers the intricate relationship between real estate taxation and macro-prudential policy.
With more structural and cyclical measures in place, 17 out of 31 European Economic Area member states adopted fewer new domestic macro-prudential measures in 2019, compared to 2018. In 2019, several member states tightened their CCyBs, in line with the broader trend of macro-prudential tightening to address cyclical risks. Seventeen European Economic Area member states had a systemic risk buffer in place in 2019. The revised CRD abolishes the use of the systemic risk buffer for systemically important institution risks and some member states will, therefore, have to revise their capital buffer policies by the end of 2020 when the revised CRD enters into force. By March 31, 2020, Finland and the Netherlands had reduced the level of the other systemically important institution (O-SII) buffer for one bank in their respective jurisdictions, in response to the COVID-19 pandemic.
Keywords: Europe, EU, Banking, Systemic Risk, CCyB, Macro-prudential Policy, Systemic Risk Buffer, COVID-19, Residential Real Estate, CRD5, CRR2, 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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