EBA Issues Guidelines on Sectoral Exposures for Systemic Risk Buffer
EBA published a set of guidelines on the appropriate subsets of sectoral exposures to which a competent or designated authority may apply a systemic risk buffer. This was done following the entry into force of the fifth Capital Requirements Directive (CRD V). The guidelines suggest a common framework of dimensions and sub-dimensions from which the relevant authority can define a subset of exposures. The guidelines include detailed definitions of elements used in each dimension and sub-dimension, along with examples of application. The deadline for competent or designated authorities to report whether or not they comply with the guidelines will be two months after the publication of translated texts. The guidelines will apply from December 29, 2020.
The guidelines are intended to harmonize the design of the appropriate subsets of sectoral exposures to the application of systemic risk buffer, to not only facilitate a common approach throughout EU but also support reciprocation of the systemic risk buffer measures between member states. The guidelines recommend a common framework in which relevant authorities can define subsets specific to their needs. This is done by employing three dimensions: type of debtor or counterparty sector, type of exposure, and type of collateral. In addition, if deemed appropriate, duly justified and proportionate when targeting systemic risk, the relevant authorities may supplement these dimensions with three sub-dimensions: economic activity, risk profile, and geographical area. A pre-condition when defining a subset of sectoral exposures in the application of a sectoral systemic risk buffer is the systemic relevance of the risks stemming from the subset of sectoral exposures according to a qualitative and quantitative assessment conducted by the relevant authority. The guidelines recommend three criteria to be used in such assessment: size, riskiness ,and interconnectedness. The guidelines also advocate appropriate coordination and cooperation between the competent authority and the designated authority to avoid the risk of overlaps, double-counting of risk, and inefficient risk targeting.
Related Links
Effective Date: December 29, 2020
Keywords: Europe, EU, Banking, CRD5, Systemic Risk Buffer, Sectoral Exposure, Systemic Risk, Macro-Prudential Policy, Basel, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
CMF Consults on Disclosure Requirements Under Basel FrameworkRelated Articles
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA Publishes Report on Asset Encumbrance of Banks in EU
EBA published the annual report on asset encumbrance of banks in EU.
US Agencies Publish Updates for Call Reports, FFIEC 101, and FR Y-9C
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA Proposes Guidelines for Establishing Intermediate Parent Entities
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
ECB Letter Sets Out Strategies to Address Issue of Nonperforming Loans
ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans.
