Featured Product

    ECB Examines Cross-Border Effects of Macro-Prudential Policies

    June 22, 2020

    ECB published an occasional paper on a stocktaking exercise on the existing national approaches in EU for assessing and monitoring the effects of cross-border spillover effects of domestically oriented macro-prudential policies. The stocktaking exercise was conducted by a task force of the Financial Stability Committee (FSC) of the European System of Central Banks (ESCB). The paper accompanies an FSC report, from April 2020, that presents a framework to be used by macro-prudential authorities when assessing cross-border spillover effects induced by enacted or planned policy measures.

    One of the key takeaways of this exercise is that cross-border spillover effects transmitted via the bank lending channel can be meaningful. The nature, direction, and magnitude of the spillover effects will vary both across modeling approaches and across model specifications. Most of the relevant national authorities in EU have a framework to assess and monitor cross-border spillovers from macro-prudential policies in place. As a rule, these frameworks are based on a set of indicators relying heavily on the guidance provided in the ESRB Handbook. In addition to this, several authorities incorporate results obtained from empirical models into the assessment. The majority of authorities see merit in extending the existing guidance for the assessment of cross-border spillovers.

    Going forward, a significant number of authorities plan to further develop their frameworks to assess cross-border spillovers. Nine countries are planning to leverage on the existing framework and two countries plan to develop a new framework. In terms of timeline, there is limited information regarding specific deadlines to have a final version of the improved framework. Mostly, the timeline is not defined and the work will depend on available resources. The authorities that did not indicate a plan to develop a framework mainly cited an insufficient number of enacted macro-prudential policy measures as the main reason. In general, developing methodologies for assessing cross-border spillovers remains very much work in progress. The stocktake highlights the prevailing practices and individual authorities’ efforts to adjust the existing guidance to their needs or develop alternative approaches. However, limited experience with the use of these frameworks makes it difficult to critically assess their usefulness or distill best practice approaches and there appears to be a need for more guidance regarding both indicator and model-based approaches.

    The stocktaking exercise indicated that enhancements to the current operational guidance should address a number of essential gaps. These include the lack of guidance on suitable models, the absence of explanation regarding the indicators, the difficulties in gathering data to compute some of the indicators, and the difficulties in mapping the indicators to the channels and the direction of cross-border effects. With respect to the most useful additional practical guidance, authorities underscored:

    • The build-up of a common set of indicators and possible thresholds to assess the materiality of spillovers
    • The development of structural models (empirical or theoretical) to conduct ex ante assessments and the design of a comprehensive framework ,including both indicators and models that could represent guidance on best practices

    The accompanying FSC report presents an operational framework that aims to address and improve on these elements. The FSC framework provides a harmonized approach to monitoring and assessing cross-border spillover potential related to the adoption of macro-prudential measures. The FSC report provides a detailed description of the recommended operational best practice framework. The intention is that the FSC framework can serve as a starting point when assessing cross-border spillover effects of planned policy measures. 

     

    Related Links

    Keywords: Europe, EU, Banking, Macro-Prudential Policy, Cross-Border Spillovers, Systemic Risk, ESCB, Basel, ECB

    Featured Experts
    Related Articles
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7291