EBA Issues Guidelines on Sectoral Exposures for Systemic Risk Buffer
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.
Related Links
Effective Date: December 29, 2020
Keywords: Europe, EU, Banking, CRD5, Systemic Risk Buffer, Sectoral Exposure, Systemic Risk, Macro-Prudential Policy, Basel, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Related Articles
BCBS Amends Capital Treatment of Non-Performing Loan Securitizations
BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks.
BoE to Move Statistical Data Collection to BEEDs Portal
BoE announced that the Data and Statistics Division is planning to move collection of statistical data to the BoE Electronic Data Submission (BEEDS) portal.
APRA Updates Reporting Standards and Guidance for EFS Data Collection
APRA published the updated reporting standards and guidance for the collection of Economic and Financial Statistics (EFS), following a consultation process. Also published was a response letter to the feedback received on the proposal for amending the EFS reporting standards and guidance.
EC Consults on Criteria for Environmentally Sustainable Activities
EC is consulting on a draft delegated regulation to supplement the Taxonomy Regulation (2020/852) by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as environmentally sustainable.
IFRS Examines Incorporation of Climate Risk Issues into IFRS Standards
The IFRS Foundation published material highlighting the ways in which existing requirements in IFRS standards require companies to consider climate-related matters when their effect is material to the financial statements.
EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB Begins First Phase of Post-Implementation Review of IFRS 9
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB Report Examines Progress in Resolvability of Systemic Institutions
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA Benchmarks National Insolvency Frameworks Across EU
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
