EBA launched a consultation on the guidelines on appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer (SyRB), in accordance with the Capital Requirements Directive (CRD). The guidelines are intended to set a common framework in EU to harmonize the design of the appropriate subsets of sectoral exposures to which a systemic risk buffer may be applied. The consultation runs until May 12, 2020. The deadline for competent or designated authorities to report whether they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply from December 29, 2020.
This consultation paper is setting predetermined dimensions or components of exposures, which competent or designated authorities should use when defining a subset of sectoral exposures in the application of a systemic risk buffer. A pre-condition when defining a subset of sectoral exposures is the systemic relevance according to a qualitative and quantitative assessment conducted by the relevant authority. The consultation paper recommends three criteria to be used in such assessments—size, riskiness, and interconnection. This consultation paper sets out the general principles to ensure the right balance between addressing the systemic risk stemming from the identified subset of sectoral exposures and the unintended consequences when applying a sectoral systemic risk buffer to this subset. Relevant authorities should avoid unwarranted interactions with other macro-prudential measures and consider reciprocity challenges that could arise when identifying an appropriate subset of sectoral exposures.
The guidelines also highlight how enhancements in the scope of the systemic risk buffer introduced under CRD 5 have increased the flexibility of the systemic risk buffer and have brought potential challenges. Thus, relevant authorities should avoid inconsistent uses of instruments and unwarranted interactions by ensuring that other active macro-prudential measures are taken into account when calibrating and activating the sectoral systemic risk buffer. With this in mind, the common framework presented in these guidelines tries to ensure a harmonized yet flexible application of the sectoral systemic risk buffer.
Comment Due Date: May 12, 2020
Keywords: Europe, EU, Banking, Systemic Risk, Systemic Risk, Buffer, CRD, Sectoral Exposure, Macro-Prudential Measures, SyRB, EBA
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Previous ArticleIMF Report Reviews Financial Sector Stability in Guinea
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).
The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.
The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.
The Basel Committee on Banking Supervision (BCBS) published further information related to its 2021 assessment of global systemically important banks (G-SIBs), with additional details to help understand the scoring methodology.
The Financial Accounting Standards Board (FASB) is consulting on an Accounting Standards Update and the associated taxonomy improvements for requirements on troubled debt restructurings and vintage disclosures under the credit losses standard (for financial instruments) topic 326.
US Agencies issued a statement that summarizes the work undertaken during the interagency policy sprints focused on crypto-assets and provides a roadmap of future work related to crypto-assets.