ECB published Issue 8 of the Macroprudential Bulletin, which provides insight into the ongoing work of ECB in the field of macro-prudential policy. ECB also published the statement of the Vice-President Luis de Guindos on the bulletin. This issue focuses on the development of the sectoral macro-prudential framework as well as on the impact of countercyclical capital requirements on bank lending and the broader economy. This bulletin includes three articles on key macro-prudential topics: the macroeconomic impact of changes in economic bank capital buffers, the importance of reciprocity arrangements for the use of sectoral capital buffers, and the specific features of the countercyclical capital buffer (CCyB) and its sectoral application (SCCyB).
Specific features of CCyB and SCCyB. This article discusses the advantages and shortcomings of the sectoral application of CCyB for addressing sectoral systemic risks. The article explores and compares the effectiveness of the CCyB and SCCyB in enhancing banks’ resilience and curbing credit cycles, using a calibrated dynamic stochastic general equilibrium model for the euro area. Results show that if risks are confined to a particular credit sector, a SCCyB could prove more effective than the CCyB in strengthening bank resilience to the target sector and in mitigating sectoral credit imbalances.
Importance of reciprocity arrangements for the use of sectoral capital buffers. This article explores the relevance of sectoral cross-border credit provided via foreign branches or direct cross-border lending in the Single Supervisory Mechanism (SSM) area. The cross-border recognition of these exposures through mandatory reciprocity arrangements may prove significant in an integrated financial system to level the playing field for domestic and foreign banks. This is important because financial services provided via foreign branches or direct cross-border exposures would otherwise not be subject to a macro-prudential measure taken in a host member state. The results of analysis support the introduction of mandatory reciprocity arrangements for sectoral capital buffers where exposures are material, in an effort to foster the effectiveness of macro-prudential policies.
Macroeconomic impact of changes in economic bank capital buffers. This article estimates the impact of countercyclical bank capital requirements on bank lending and the economy. Due to the limited use of CCyB, estimations are based on target economic capital ratio, which is the capital ratio that a bank would like to hold considering its own characteristics and macroeconomic conditions. The assumption is that the effects of changes in target ratios are similar to the effects of changes in CCyB. Results show that a sudden decline in economic capital buffers, such as one arising from an increase in the target capital ratio, leads to a modest decline in output and prices and to a larger decline in bank lending growth, suggesting that countercyclical capital-based macro-prudential policy measures can be useful to dampen the financial cycle.
Keywords: Europe, EU, Banking, Macroprudential Bulletin, CCyB, Macro-Prudential Policy, SCCyB, Capital Buffers, Sectoral CCyB, ECB
Previous ArticleBCBS Issues Sixteenth Progress Report on Adoption of Basel Framework
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.