ESRB published a report that explores macro-prudential policy implications for foreign branches relevant for financial stability. The report discusses the deficiencies in the current legal framework in EU with regard to the exchange and collection of macro-prudential information on foreign bank branches. It discusses the importance of such information exchange from a financial stability perspective and proposes that a framework for the exchange of information on foreign branches for macro-prudential purposes should be further developed at the EU and national levels.
The role of foreign branches in financial intermediation may gradually increase in parallel with the process of financial integration and further progress in the Banking Union. The report discusses the financial stability implications of foreign branches and analyzes the EU legal framework for the exchange and collection of information for macro-prudential purposes. It describes how significant foreign branches are in EU member states and discusses their potential financial stability implications. It then describes the current situation regarding existing definitions, information available, and the framework for the exchange of information on foreign branches within the overall EU legal framework. It also discusses new avenues for requiring and exchanging information on foreign branches. Finally, the report concludes that a framework for the exchange of information on foreign branches for macro-prudential purposes is necessary and should be further developed at the EU and national levels. It also proposes, as the vehicles of this framework, the colleges of supervisors and voluntary arrangements between authorities on the exchange of information within the existing legal framework, such as Memoranda of Understanding.
The report specifies that relevant authorities entrusted with the adoption and/or activation of macro-prudential policy measures or other financial stability tasks could be granted access to information on foreign branches through a voluntary exchange of information based on a mutual agreement between authorities. Well-designed and efficient information-sharing arrangements on foreign branches can facilitate the tasks of host authorities entrusted with the adoption and/or activation of macro-prudential policy measures or other financial stability tasks in several fields, including in the areas of risk analysis, reciprocity, and supervision of measures. The Nordic-Baltic Macroprudential Forum (NBMF), along with the existing Memorandum of Understanding for financial stability in the Nordic-Baltic region, could be considered as a benchmark for a close regional cooperation between macro-prudential authorities.The Memorandum of Understanding on supervision of significant branches in the Nordic-Baltic region provides an example of the development of a coordination framework intended to facilitate cooperation between competent authorities in the region.
Related Link: Report (PDF)
Keywords: Europe, EU, Banking, Systemic Risk, Macro-prudential Policy, Foreign Bank Branches, Financial Stability, Supervisory Cooperation, ESRB
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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