FED Paper Examines Impact of Governance Structures on CCyB Decisions
FED published a paper that examines whether governance structures for macro-prudential policies affect decisions to implement Basel III macro-prudential capital buffers. The paper presents empirical evidence that stronger governance for macro-prudential policies significantly increases the probability of using the countercyclical capital buffer (CCyB). The analysis also shows that stronger governance increases the sensitivity of this probability to credit growth, consistent with taking actions to mitigate financial stability risks.
The study finds that the probabilities of using CCyB are higher in countries that have financial stability committees with stronger governance mechanisms and fewer agencies, which reduces coordination problems. The probability of the use of CCyB by a country is even higher when financial stability committees or ministry of finance have direct authority to set the CCyB; this might be because setting the CCyB involves establishing a new macro-financial analytical process to regularly assess systemic risks and allows these new entities to influence the traditional process of writing rules. The study finds that only some of the new multi-agency committees—specifically, those with tools or those with fewer member agencies—are consistent with a functional delegation motive. While countries may prefer to create these committees mainly for improved communication, large committees or those with weak governance mechanisms may actually hinder effective decision-making.
The study also shows that the institutional arrangements and establishing clear responsibilities for new tools have a measurable effect on decisions. New authorities with tools and accountability can have a significant effect on using the CCyB. The study does not find that central banks with direct powers are more likely than independent bank regulators to use the CCyB or increase the minimum systemically important bank surcharge, although central banks are involved in multiple ways in these decisions. For the CCyB, they are the direct authority in 34 countries (wherever they are also the prudential regulator) and they make formal recommendations in five more countries. However, the study does not find a distinct effect for the central bank from the prudential regulator for any of the macro-prudential capital buffer decisions.
Related Link: Paper
Keywords: Americas, US, Banking, CCyB, Basel III, Systemic Risk, Macro-Prudential Policy, Financial Stability, FED
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Blake Coules
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.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
ECB on Simulating Fire Sales in a System of Banks and Asset ManagersRelated Articles
EBA Launches Stress Tests for Banks, Issues Other Updates
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
