EBA published a set of guidelines on the appropriate subsets of sectoral exposures to which a competent or designated authority may apply a systemic risk buffer. This was done following the entry into force of the fifth Capital Requirements Directive (CRD V). The guidelines suggest a common framework of dimensions and sub-dimensions from which the relevant authority can define a subset of exposures. The guidelines include detailed definitions of elements used in each dimension and sub-dimension, along with examples of application. The deadline for competent or designated authorities to report whether or not they comply with the guidelines will be two months after the publication of translated texts. The guidelines will apply from December 29, 2020.
The guidelines are intended to harmonize the design of the appropriate subsets of sectoral exposures to the application of systemic risk buffer, to not only facilitate a common approach throughout EU but also support reciprocation of the systemic risk buffer measures between member states. The guidelines recommend a common framework in which relevant authorities can define subsets specific to their needs. This is done by employing three dimensions: type of debtor or counterparty sector, type of exposure, and type of collateral. In addition, if deemed appropriate, duly justified and proportionate when targeting systemic risk, the relevant authorities may supplement these dimensions with three sub-dimensions: economic activity, risk profile, and geographical area. A pre-condition when defining a subset of sectoral exposures in the application of a sectoral systemic risk buffer is the systemic relevance of the risks stemming from the subset of sectoral exposures according to a qualitative and quantitative assessment conducted by the relevant authority. The guidelines recommend three criteria to be used in such assessment: size, riskiness ,and interconnectedness. The guidelines also advocate appropriate coordination and cooperation between the competent authority and the designated authority to avoid the risk of overlaps, double-counting of risk, and inefficient risk targeting.
Effective Date: December 29, 2020
Keywords: Europe, EU, Banking, CRD5, Systemic Risk Buffer, Sectoral Exposure, Systemic Risk, Macro-Prudential Policy, Basel, EBA
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.
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