The General Board of ESRB has decided to exclude an Estonian macro-prudential measure related to the systemic risk buffer from the list of macro-prudential policy measures that are recommended to be reciprocated under the Recommendation ESRB/2015/2. In addition, ESRB has amended text related to the reciprocation of certain macro-prudential measures from Belgium, Finland, France, and Sweden. In this context, the Recommendation ESRB/2020/9, which amends Recommendation ESRB/2015/2, has been published in the Official Journal of the European Union.
On June 24, 2016, Recommendation ESRB/2015/2 (pursuant to the ESRB Recommendation ESRB/2016/4) was amended to recommend the reciprocation of the 1% systemic risk buffer rate applied by the Bank of Estonia (Eesti Pank) to the domestic exposures of all credit institutions authorized in Estonia. On April 06, 2020, Eesti Pank decided to reduce the level of the systemic risk buffer rate to 0%, with effect from May 01, 2020. In response to Eesti Pank’s decision of April 06, 2020, the General Board of ESRB has decided to exclude the Estonian measure from the list of macro-prudential policy measures that are recommended to be reciprocated under Recommendation ESRB/2015/2. Therefore, Recommendation ESRB/2015/2 is being amended accordingly. Another amendment involves the replacement of the Annex of Recommendation ESRB/2015/2 by the Annex of Recommendation ESRB/2020/9. Moreover, Section 1, sub-recommendation C(1), of Recommendation ESRB/2015/2 is being replaced by text that includes the following:
- Belgium—A risk-weight add-on for retail exposures secured by residential immovable property located in Belgium, applied (in accordance with the Capital Requirements Regulation) to credit institutions authorized in Belgium, using the Internal Ratings-Based, or IRB, Approach for calculating regulatory capital requirements and composed of a flat risk-weight add-on of 5 percentage points and a proportionate risk-weight add-on consisting of 33% of the exposure-weighted average of the risk-weights applied to the portfolio of retail exposures secured by residential immovable property located in Belgium
- Finland—A 15% floor for the average risk-weight on residential mortgage loans secured by a mortgage on housing units in Finland applied to credit institutions authorized in Finland, using the IRB Approach for calculating regulatory capital requirements
- France—A tightening of the large exposure limit applicable to exposures to highly indebted large non-financial corporations having their registered office in France to 5% of eligible capital, applied to global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) at the highest level of consolidation of their banking prudential perimeter
- Sweden—A credit institution-specific floor of 25% for the exposure-weighted average of the risk weights applied to the portfolio of retail exposures to obligors residing in Sweden secured by immovable property in accordance with CRR to credit institutions authorized in Sweden using the IRB Approach for calculating regulatory capital requirements
The framework on voluntary reciprocity for macro-prudential policy measures, which is set out in Recommendation ESRB/2015/2, aims to ensure that all exposure-based macro-prudential policy measures activated in one member state are reciprocated in the other member states.
Keywords: Europe, EU, Estonia, Belgium, Finland, France, Sweden, Banking, Systemic Risk, Systemic Risk Buffer, ESRB 2015/2, Reciprocity, Recommendation, ESRB 2020/9, Macro-Prudential Policy, 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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