Article 513 of the Capital Requirements Regulation (the CRR) provides that the European Commission shall report by 31 December 2014 to the European Parliament and the Council of the EU on the review of the macro-prudential provisions in the EU capital requirements framework. In the context of this review, the European Systemic Risk Board (ESRB) received a call for advice from the Commission on the sufficiency of these provisions to mitigate systemic risks in the EU.

The ESRB has now published its response to the Commission’s call for advice. The ESRB’s advice is based on a conceptual, rather than empirical analysis as the new EU capital requirements framework has only been in place for a few months.

In its response, the ESRB recommends that the range of tools provided in the CRR and Capital Requirements Directive IV be maintained, with a number of specific alterations to improve effectiveness and coverage. In particular, the ESRB advises:

  • removing the cap of the other systemically important institutions’ buffer, revising the definition of the systemic risk buffer (SRB) by allowing the use of the SRB to all banks and subsets of exposures, but not to the subset of banks, and excluding the use of the SRB for addressing risks emanating from the systemic importance of global systemically important institutions (G-SII) and O-SII;
  • conditional to limiting the use of the SRB to all banks, allowing the use of the O-SII buffer for institutions with common business models and/or correlated risk that could, on an aggregate basis, pose systemic risks to financial stability;
  • applying the SRB in addition to the maximum of the G-SII and O-SII buffers and simplifying the procedures for coordinating the SRB and O-SII buffer by putting in place a notification and approval procedure when the sum of both buffers exceeds a certain threshold;
  • clarifying that authorities can set multiple SRB levels to address distinct structural risks. If the SRB applies to a subset of exposures, an enhanced coordination procedure for SRB targeting exposures in other Member States should be put in place;
  • changing the sequencing of the assessment for the SRB and article 458 CRR so that authorities do not need to consider using Pillar 2 measures before applying the SRB and article 458 CRR; and
  • aligning article 164 CRR with the provisions in article 124 CRR and clarifying the conditions under which articles 124 and 164 CRR would apply.

View ESRB response to the call for advice by the European Commission on macro-prudential rules in the CRD/CRR, 1 May 2014