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    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    December 01, 2021

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV). In addition, the European Systemic Risk Board (ESRB) published reports of its technical committees on a conceptual framework for assessing systemic risks with respect to the policy measures taken to address these risks. With respect to the call for evidence on the review of macro-prudential rules, EC is seeking views on the functioning of, and possible improvements to, the existing rules, drawing lessons from the COVID-19 pandemic and other experiences. The review also aims to determine whether the existing rules are suitable to address emerging financial stability risks such as climate change and those stemming from innovations in digital finance. The feedback will inform the impact assessment for a possible legislative proposal on the macro-prudential framework for banks.

    The macro-prudential review aims to ensure that the banking sector in European Union remains resilient to systemic risks, including new and emerging risks, by updating the macro-prudential framework by

    • revising the existing tools and/or adding new tools, if appropriate (for instance, in light of systemic risks to the real estate sector, interconnectedness between banks and non-banks, new risks related to climate change, digital finance, cybersecurity, and crypto-assets)
    • removing obsolete tools and any unwarranted overlaps between tools, taking into account changes in the economic and regulatory environment
    • enhancing the effectiveness of macro-prudential measures by limiting as much as possible the risks of regulatory arbitrage across borders and between banks and non-banks
    • streamlining notification, assessment, and authorization procedures to make them clearer and more consistent and to enhance their effectiveness in reducing inaction bias and achieving the European Union-level financial stability and other objectives
    • improving transparency, possibly by re-organizing the macro-prudential provisions in the applicable legal texts (CRR and CRD)

    The ESRB reports from the Advisory Scientific Committee (ASC) and the Advisory Technical Committee (ATC) explain the macro-prudential policy stance and discusses the framework for assessing the macro-prudential policy stance, respectively. The macro-prudential stance is a conceptual framework for comparing systemic risks with the policy measures taken to address them. The ASC report applies some of the lessons from the monetary policy framework to macro-prudential policy to complement narrative approaches; it discusses a setting in which the ultimate objective of macro-prudential policy is to minimize the frequency and severity of economic losses arising from severe financial distress and integrates the growth-at-risk concept into that setting. The ATC report applies country-level data to a macro-prudential stance framework to examines the three complementary approaches to assessing, discussing, and communicating the macro-prudential stance: a growth-at-risk approach, a semi-structural approach, and an indicator approach for sectoral analysis. The two reports document the progress of ESRB in the area of macro-prudential policy stance, although further work is required to refine the proposed methods and approaches. In the longer run, assessments of the macro-prudential stance also aid communication of macro-prudential policy decisions and enhance accountability.


    Related Links

    Comment Due Date: March 18, 2022 (Review)

    Keywords: Europe, EU, Banking, CRR, CRD IV, Basel, Macro-prudential Policy, Systemic Risk, COVID-19, Climate Change Risk, Digital Finance, Macro-prudential Measures, Call for Evidence, Regtech, ESRB, EC

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