EBA proposes to simplify and improve the macroprudential framework

The European Banking Authority (EBA) published today its response to the European Commission’s Call for Advice on the review of the macroprudential framework, proposing a set of recommendations to simplify the procedures around some of the existing macroprudential tools and to increase harmonisation for others.

The EU banking system proved resilient during the COVID pandemic and banks continued to provide credit to the real economy. This was partly due to the extraordinary fiscal, monetary and prudential measures, that were put in place and that included a release of macroprudential buffers. The lessons learnt since the inception of the macroprudential framework, including those gained during the COVID pandemic highlighted the need for some targeted changes to make the macroprudential framework more effective and to improve the functioning of the Single Market.

The EBA’s advice includes the following recommendations:

• to rebuild regulatory capital buffers to sufficient levels so that they can be released when needed again in the future;
• to undertake a comprehensive evaluation of the interaction of macroprudential measures with other capital requirements, such as leverage ratio, own funds and eligible liabilities (MREL) requirements;
• to maintain clear roles and responsibilities of the different authorities involved in microprudential and macroprudential policy as well as close coordination between them;
• to include a legal mandate in the Capital Requirements Directive (CRD) to develop methodologies covering both the identification of other systemically important institutions (O-SIIs) and the setting of buffer rates;
• to simplify the text of the CRD and the Capital Requirements Regulation (CRR) around governance procedures for some macroprudential measures;
• to perform further assessments on the ability of current macroprudential tools to address environmental, crypto assets and cyber security risks;
• to establish an oversight and monitoring system for non-bank lenders and enlarge the scope of the macroprudential framework to cover non-bank lenders.

Background

Article 513 of the CRR requires the European Commission to complete a review of the macroprudential provisions in the CRR and CRD by June 2022 and, if appropriate, to submit a legislative proposal to the European Parliament and to the Council by December 2022.

As part of this review, in June 2021, the European Commission issued a request to the EBA, ESRB and ECB for advice on four aspects, namely: (1) the overall design and functioning of the buffer framework, (2) missing or obsolete instruments, (3) internal market considerations and (4) global risks.