Featured Product

    ESRB Chair Remarks on Development of Macro-Prudential Policy in Europe

    September 26, 2019

    The ECB President and the ESRB Chair Mario Draghi spoke at the fourth annual conference of ESRB, in Frankfurt, about progress in the development of macro-prudential policy during the past eight years. He added that, over the past eight years, the implementation of macro-prudential policy in Europe has substantially improved and ESRB has played a valuable role in facilitating that process. However, the overall framework for macro-prudential policy in Europe remains incomplete and progress is needed in terms of better analytical tools, new instruments to counter the development of risk outside the banking sector, and a clearer framework to govern policy actions.

    Mr. Draghi outlined the following areas of further progress in macro-prudential policy:

    • Analytical tools. Developing the analytical toolkit to adequately monitor inter-connectedness and contagion requires granular datasets, along with the ability to map and link data across entities and markets. Only a holistic view of the system will allow potential contagion channels to be identified and modeled; this requires investing in new technologies for data analytics and enhancing the capacity for authorities to link and share data and technical knowledge.
    • Instruments to counter risks outside the banking sector. Mr. Draghi emphasized the need to broaden the range of macro-prudential instruments beyond those currently available, which focus almost exclusively on the banking sector. For the insurance sector, the contours of such instruments are taking shape. They include solvency instruments such as symmetric capital requirements for cyclical risks, liquidity instruments for insurers with a vulnerable liquidity profile, and instruments to target bank-like activities to ensure that macro-prudential policy is consistent across sectors.
    • Framework to govern policy actions. He believes that such a framework would facilitate communication with market participants and the general public as well as help mitigate any risk of inaction bias. In contrast to the monetary policy framework, the framework that governs macro-prudential policy interventions is much less developed. Developing the policy framework is challenging and will take time. The ESRB approach uses the concept of residual risk, which is the difference between the level of risk and the current resilience of the financial system. In setting up the framework, policymakers need to establish the level of residual risk that they consider acceptable. Regular macro-prudential policy decisions would then follow a two-stage process. Policymakers assess the level of residual risk in the system and, if that diverges from the acceptable level, they then assess the policy tightening or loosening required to realign it.

     

    Related Link: Speech

     

    Keywords: Europe, EU, Banking, Insurance, Macro-Prudential Policy, Systemic Risk, Contagion Risk, Big Data, ECB, ESRB

    Featured Experts
    Related Articles
    News

    EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR

    EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).

    July 01, 2020 WebPage Regulatory News
    News

    FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform

    FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.

    July 01, 2020 WebPage Regulatory News
    News

    IAIS on Package for 2020 Data Collection on ICS and Aggregation Method

    IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.

    June 30, 2020 WebPage Regulatory News
    News

    BIS to Establish More Innovation Hubs in Europe and North America

    BIS announced that it will establish new Innovation Hub centers across Europe and in North America in cooperation with member central banks.

    June 30, 2020 WebPage Regulatory News
    News

    FED Updates Form FR 2052a for LCR Reporting by Banks

    FED updated the reporting form for FR 2052a, which is used to monitor the overall liquidity profile of certain supervised institutions.

    June 30, 2020 WebPage Regulatory News
    News

    PRA Statement on Changes to CRR in Response to COVID-19 Crisis

    PRA published a statement that sets out its views on certain amendments made to Capital Requirements Regulations (CRR and CRR2) via EU Regulation 2020/873 (CRR "Quick Fix"), including some guidance for firms.

    June 30, 2020 WebPage Regulatory News
    News

    PRA Proposes Approach for Publishing Solvency II Technical Information

    PRA is proposing (CP5/20) an approach for publication of Solvency II technical information after the end of the transition period for Brexit.

    June 30, 2020 WebPage Regulatory News
    News

    FASB Announces Upgrade of SEC EDGAR System to Release 20.2

    FASB announced that SEC has upgraded the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system to Release 20.2.

    June 30, 2020 WebPage Regulatory News
    News

    CFRF Publishes Guide for Addressing Climate-Related Financial Risks

    The Climate Financial Risk Forum (CFRF), which is a joint climate risk forum of FCA and PRA, published a guide written by the industry for the industry to help firms approach and address climate-related financial risks.

    June 29, 2020 WebPage Regulatory News
    News

    IAIS Paper Provides Guidance on Liquidity Risk Management for Insurers

    IAIS published an application paper on liquidity risk management for insurers.

    June 29, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5414