EBA Proposes Guide on Sectoral Exposures to Apply Systemic Risk Buffer
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.
Related Links
Comment Due Date: May 12, 2020
Keywords: Europe, EU, Banking, Systemic Risk, Systemic Risk, Buffer, CRD, Sectoral Exposure, Macro-Prudential Measures, SyRB, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Blake Coules
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.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
