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.
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