EBA Proposes Guide on Sectoral Exposures to Apply Systemic Risk Buffer

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.

Related Links

• Press Release
• Consultation Paper (PDF)

Comment Due Date: May 12, 2020

Keywords: Europe, EU, Banking, Systemic Risk, Systemic Risk, Buffer, CRD, Sectoral Exposure, Macro-Prudential Measures, SyRB, EBA