The European Systemic Risk Board (ESRB) has published a letter from Mario Draghi, ESRB Chair, which responds to an earlier letter from the European Commission seeking views on the potential use of Article 459 of the Capital Requirements Regulation.

In the letter the ESRB emphasises the importance of that Article, which gives the Commission the power to adopt delegated acts to impose, for one year, stricter prudential requirements for exposures where this is necessary to prevent and mitigate macro-prudential risks affecting all Member States as a complement to other macro-prudential instruments which are, on the contrary, applicable to individual Member States.

The ESRB states that it has not yet seen circumstances that would warrant the Commission’s use of Article 459. The ESRB could, however, find such circumstances if Article 459 might be used to help address the following systemic threats:

  • where systemic fragilities in financial markets might call for comprehensive, uniform and swift policy responses; and
  • where indirect contagion in its various forms (e.g. through asset price correlation, fire-sales, or the information channel) may easily spread to other Member States necessitating broad preventive policy measures across the EU.

In such circumstances Article 459 could be used to enhance systemic stability by requiring firms to improve public disclosures on exposures, indicators or practices of systemic relevance.

View Letter from Mario Draghi to Jonathan Faull, 7 January 2015