EBA launched a consultation on the guidelines on appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer (SyRB), in accordance with the Capital Requirements Directive (CRD). The guidelines are intended to set a common framework in EU to harmonize the design of the appropriate subsets of sectoral exposures to which a systemic risk buffer may be applied. The consultation runs until May 12, 2020. The deadline for competent or designated authorities to report whether they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply from December 29, 2020.
This consultation paper is setting predetermined dimensions or components of exposures, which competent or designated authorities should use when defining a subset of sectoral exposures in the application of a systemic risk buffer. A pre-condition when defining a subset of sectoral exposures is the systemic relevance according to a qualitative and quantitative assessment conducted by the relevant authority. The consultation paper recommends three criteria to be used in such assessments—size, riskiness, and interconnection. This consultation paper sets out the general principles to ensure the right balance between addressing the systemic risk stemming from the identified subset of sectoral exposures and the unintended consequences when applying a sectoral systemic risk buffer to this subset. Relevant authorities should avoid unwarranted interactions with other macro-prudential measures and consider reciprocity challenges that could arise when identifying an appropriate subset of sectoral exposures.
The guidelines also highlight how enhancements in the scope of the systemic risk buffer introduced under CRD 5 have increased the flexibility of the systemic risk buffer and have brought potential challenges. Thus, relevant authorities should avoid inconsistent uses of instruments and unwarranted interactions by ensuring that other active macro-prudential measures are taken into account when calibrating and activating the sectoral systemic risk buffer. With this in mind, the common framework presented in these guidelines tries to ensure a harmonized yet flexible application of the sectoral systemic risk buffer.
Comment Due Date: May 12, 2020
Keywords: Europe, EU, Banking, Systemic Risk, Systemic Risk, Buffer, CRD, Sectoral Exposure, Macro-Prudential Measures, SyRB, EBA
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Previous ArticleIMF Report Reviews Financial Sector Stability in Guinea
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.