Featured Product

    ECB Examines Cross-Border Effects of Macro-Prudential Policies

    June 22, 2020

    ECB published an occasional paper on a stocktaking exercise on the existing national approaches in EU for assessing and monitoring the effects of cross-border spillover effects of domestically oriented macro-prudential policies. The stocktaking exercise was conducted by a task force of the Financial Stability Committee (FSC) of the European System of Central Banks (ESCB). The paper accompanies an FSC report, from April 2020, that presents a framework to be used by macro-prudential authorities when assessing cross-border spillover effects induced by enacted or planned policy measures.

    One of the key takeaways of this exercise is that cross-border spillover effects transmitted via the bank lending channel can be meaningful. The nature, direction, and magnitude of the spillover effects will vary both across modeling approaches and across model specifications. Most of the relevant national authorities in EU have a framework to assess and monitor cross-border spillovers from macro-prudential policies in place. As a rule, these frameworks are based on a set of indicators relying heavily on the guidance provided in the ESRB Handbook. In addition to this, several authorities incorporate results obtained from empirical models into the assessment. The majority of authorities see merit in extending the existing guidance for the assessment of cross-border spillovers.

    Going forward, a significant number of authorities plan to further develop their frameworks to assess cross-border spillovers. Nine countries are planning to leverage on the existing framework and two countries plan to develop a new framework. In terms of timeline, there is limited information regarding specific deadlines to have a final version of the improved framework. Mostly, the timeline is not defined and the work will depend on available resources. The authorities that did not indicate a plan to develop a framework mainly cited an insufficient number of enacted macro-prudential policy measures as the main reason. In general, developing methodologies for assessing cross-border spillovers remains very much work in progress. The stocktake highlights the prevailing practices and individual authorities’ efforts to adjust the existing guidance to their needs or develop alternative approaches. However, limited experience with the use of these frameworks makes it difficult to critically assess their usefulness or distill best practice approaches and there appears to be a need for more guidance regarding both indicator and model-based approaches.

    The stocktaking exercise indicated that enhancements to the current operational guidance should address a number of essential gaps. These include the lack of guidance on suitable models, the absence of explanation regarding the indicators, the difficulties in gathering data to compute some of the indicators, and the difficulties in mapping the indicators to the channels and the direction of cross-border effects. With respect to the most useful additional practical guidance, authorities underscored:

    • The build-up of a common set of indicators and possible thresholds to assess the materiality of spillovers
    • The development of structural models (empirical or theoretical) to conduct ex ante assessments and the design of a comprehensive framework ,including both indicators and models that could represent guidance on best practices

    The accompanying FSC report presents an operational framework that aims to address and improve on these elements. The FSC framework provides a harmonized approach to monitoring and assessing cross-border spillover potential related to the adoption of macro-prudential measures. The FSC report provides a detailed description of the recommended operational best practice framework. The intention is that the FSC framework can serve as a starting point when assessing cross-border spillover effects of planned policy measures. 

     

    Related Links

    Keywords: Europe, EU, Banking, Macro-Prudential Policy, Cross-Border Spillovers, Systemic Risk, ESCB, Basel, ECB

    Featured Experts
    Related Articles
    News

    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.

    January 04, 2023 WebPage Regulatory News
    News

    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.

    January 01, 2023 WebPage Regulatory News
    News

    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.

    December 30, 2022 WebPage Regulatory News
    News

    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.

    December 29, 2022 WebPage Regulatory News
    News

    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.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    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.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697