ECB published an occasional paper that describes how the financial stability and macro-prudential policy functions are organized at ECB. Macro-prudential policy tasks were conferred on ECB by the Single Supervisory Mechanism (SSM) Regulation. The paper describes the macro-prudential governance framework of ECB in the new institutional setup. After reviewing the concept and origins of systemic risk, it reflects on the emergence of macro-prudential policy in the aftermath of the financial crisis, its objectives, and the instruments in application.
The paper discusses the macro-prudential policy analysis at ECB as well as the selected analytical tools supporting financial stability surveillance and assessment work. The tools are grouped into three broad areas:
- Methods to gauge the state of financial instability or prospects of near-term systemic stress
- Measures to capture the build-up of systemic risk focused on country-level financial cycle measurement and early warning methods
- ECB stress testing framework for macro-prudential purposes
The analytical strengthening has provided ECB with systemic risk identification and assessment tools appropriate for supporting macro-prudential policy calibration, such as the countercyclical capital buffer to address cyclical risks or capital buffers for systemic institutions to address structural risks. While the framework has come a long way since its infancy, there are still a number of challenges and open issues; therefore, work continues on tackling boundary issues with regard to a growing non-bank sector and the associated market-based finance.
Related Link: Occasional Paper (PDF)
Keywords: Europe, EU, Banking, Macro-Prudential Policy, SSM, Systemic Risk, Stress Testing, CCyB, ECB
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