The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway. Before making this recommendation, the Committee has carefully considered the evidence provided by the Norwegian Ministry of Finance, including the results of stress tests performed by the Norwegian authorities and the historical data on past severe crises in Norway. Thus, the Standing Committee of the EFTA States does not recommend any changes to the notified measure of the Norwegian Ministry in view of its effects on subsidiaries of credit institutions established in other European Economic Area states. Currently, credit institutions in Norway are subject to a systemic risk buffer of 3% on all exposures, except for two systemically important institutions that are subject to a systemic risk buffer of 5% on all exposures.
The notified systemic risk buffer of 4.5% would apply from December 31, 2020 to all credit institutions, except credit institutions that do not use the advanced internal ratings-based approach, as they would have a transitional period where the current buffer remains 3% on all exposures until December 31, 2022. The measure will apply to domestic exposures of credit institutions authorized in Norway, including five subsidiaries of parents established in other EU member states. The measure will be re-evaluated by the Ministry of Finance every second year. The Committee states that the notified systemic risk buffer is justified, suitable, proportionate, and effective to address the systemic risks for which it is intended. In its recommendation, the Committee also notes that other macro-prudential measures in the Capital Requirements Directive or Regulation, alone or in combination, would be relatively less effective in sufficiently and adequately addressing the identified risk.
Additionally, to reduce the potential for leakages to foreign institutions that are active in Norway through branches, the Ministry plans to request reciprocation of the systemic risk buffer for all European Economic Area institutions with exposures to Norway. The recommendation sets out that the notified measure, including its application to subsidiaries whose parents are established in other European Economic Area states, does not entail disproportionate adverse effects on the financial system of Norway or of the European Economic Area as a whole and does not constitute an obstacle to the proper functioning of the internal market. However, the Standing Committee notes that the reciprocation request and the higher capital requirements this would imply for foreign credit institutions will be assessed by ESRB when the Ministry will request the ESRB to recommend to its members to reciprocate the measure.
Related Link: Recommendation
Keywords: Europe, EU, Norway, Banking, Systemic Risk Buffer, CRD, CRR, Basel, Systemic Risk, Regulatory Capital, IRB Approach, EU Standing Committee
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.
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.
The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.
The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).
The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks.