ESRB Report Examines Macro-Prudential Measures Adopted in EU in 2018

The report describes the changes in policy frameworks and outlines the national macro-prudential measures that were adopted in 2018. It first reviews certain trends seen across different instruments and then turns to specific instruments. The report also contains three special features. Special Feature A considers the use to date of national flexibility measures under Article 458 of the Capital Requirements Regulation (CRR) by member states, along with the lessons learned from their experience with these measures. Special Feature B introduces the concept of macro-prudential stance, particularly the interlinkages between the stance assessment and the policy action assessment. Special Feature C provides an overview of the upcoming changes to macro-prudential provisions in CRR and the Capital Requirements Directive (CRD) IV. 

Apart from the activation of the countercyclical capital buffer (CCyB) and the increase in the CCyB rate in several European Economic Area member states, nine member states introduced a systemic risk buffer (SyRB) or recalibrated the SyRB rate. As there are indications that the financial cycle is turning in some countries, more member states tightened the CCyB. By the end of 2018, twelve countries in the European Economic Area had decided on a positive CCyB rate. Despite extensive international and European guidance for the use of CCyB, differences in key features of the national frameworks remained. These include the objective of the instrument, the neutral buffer rate, and the indicators used to inform the buffer decision. Given shortcomings of the credit-to-GDP gap as a reference indicator for CCyB decisions, particularly after periods of prolonged excessive credit growth and for transition economies, some member states developed adjusted indicators and placed greater weight on additional indicators and discretion to arrive at a policy judgment. After that, the most frequently introduced measure in 2018 pertained to the caps on debt service-to income (DSTI) ratios. Changes to the methodology used to identify systemically important institutions (SIIs) and to set their buffers were also made relatively often.

Related Link: Report (PDF)

Keywords: Europe, EU, Banking, Systemic Risk, CCyB, CRR, SyRB, CRD IV, Macro-Prudential Policy, Macro-Prudential Measures, ESRB