ESRB Issues Opinion on Enhancing Framework for Structural Buffers
ESRB published its final report on the use of structural macro-prudential instruments in the EU. It also issued an Opinion to EC with proposals on enhancing the EU legal framework for structural buffers. In the last three years, authorities have increasingly required EU banks to apply a systemic risk buffer and a systemically important institutions buffer in their own funds calculations. Based on this, ESRB has revised its Handbook and published the proposals to improve the macro-prudential toolkit.
In the final report, ESRB published its analysis of the use of structural buffers in the EU over the last three years. The structural buffers include the buffer for global systemically important institutions (G-SIIs), the buffer for other systemically important institutions (O-SIIs), and the systemic risk buffer (SRB). ESRB, in its opinion to EC, proposes ways to enhance the EU legal framework for structural buffers, which would strengthen macro-prudential policy and protect the Single Market. These policy considerations should not be understood as formal ESRB warnings or recommendations, as defined by Article 16 of the ESRB Regulation. The main proposals include:
- Substantial increase in the O-SII cap from 2% to 3%, with the possibility for designated authorities to impose buffers higher than 3%, subject to EC approval
- Substantial increase in the additional O-SII buffer cap on subsidiaries: the O-SII buffer for subsidiaries of EU parent institutions should not exceed the fully phased-in O-SII or G-SII buffer applicable to the group at consolidated level by more than 2 percentage points
- Upgrade of the SRB to the status of a dedicated instrument targeting structural systemic risk. This would require the possibility of a sectoral application of the instrument and of multiple SRB applications, to allow authorities to address distinct specific risk;
- Delineation of the SRB and O-SII buffer; structural buffers should be additive in so far as they target different systemic risks
- Simplification and clarification of the processes and improvements in transparency
Based on the experience with structural buffers and on economic analysis, additional guidance for national authorities has been included in the revised ESRB Handbook; this includes guidance on O-SII buffer calibration; a common understanding of the categories of long-term non-cyclical risks that the SRB can address; clarification of procedural aspects of SRB application; cooperation among authorities; and potential use of the leverage ratio to complement structural buffers.
Related Links
Keywords: Europe, EU, Banking, Systemic Risk Buffer, G-SII, O-SII, Systemic Risk, Macro-prudential Tools, ESRB
Featured Experts
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.
Previous Article
SBV Amends Circulars Related to Operation of Credit InstitutionsRelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
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.
ECB is Conducting First Cyber Risk Stress Test for Banks
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.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
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.
EU and UK Agencies Issue Updates on Final Basel III Rules
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