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    EBA Issues Advice on Review of Macro-Prudential Framework

    In response to the European Commission Call for Advice on the review of macro-prudential framework, the European Banking Authority (EBA) proposed a set of recommendations to simplify the procedures around existing macro-prudential tools and enhance harmonization for other tools.

    As part of the review, in June 2021, the European Commission had issued a request to the EBA, European Systemic Risk Board (ESRB), and the European Central Bank (ECB) for advice on the overall design and functioning of the buffer framework, missing or obsolete instruments, internal market considerations, and global risks. EBA highlighted the need for targeted changes to make the macro-prudential framework more effective and to improve the functioning of the Single Market, thus proposing the following recommendations:

    • Rebuild regulatory capital buffers to sufficient levels so that they can be released when needed again in the future
    • Maintain clear roles and responsibilities of the different authorities involved in micro-prudential and macro-prudential policies as well as close coordination between them
    • Postpone the assessment of interaction between the input and output floors and the macro-prudential measures to the next review of the macro-prudential toolkit, as the input and output floors were recently introduced in the Basel III standard and are yet to be fully applicable
    • Include a legal mandate in the Capital Requirements Directive (CRD) to develop methodologies covering both the identification of other systemically important institutions (O-SIIs) and the setting of buffer rates
    • Simplify the text of the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR) around governance procedures for some macro-prudential measures
    • Undertake a comprehensive evaluation of the interaction of macro-prudential measures with other capital requirements, such as leverage ratio, own funds, and eligible liabilities (MREL) requirements, in light of the implementation of the new elements introduced in the revised regime (constituting CRR2, CRD5, and the revised Bank Recovery and Resolution Directive) 
    • Perform further assessments on the ability of current macro-prudential tools to address environmental risks, crypto assets, and cyber security risks
    • Establish an oversight and monitoring system for non-bank lenders and enlarge the scope of the macro-prudential framework to cover non-bank lenders (which include fintech lenders and peer-to-peer lending platforms)

    Article 513 of the CRR requires the European Commission to complete a review of the macro-prudential provisions in the CRR and CRD by June 2022 and, if appropriate, to submit a legislative proposal to the European Parliament and to the Council by December 2022. The European Commission has also launched a consultation to gather other stakeholder views and experience with the current macro-prudential rules.


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    Keywords: Europe, EU, Banking, Macro-Prudential Framework, Basel, Regulatory Capital, ESG, Climate Change Risk, MREL, Macro-Prudential Policy, CRD, CRR, Crypto-Assets, Cyber Risk, Reporting, Systemic Risk, EBA, Subheadline

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