The CRD allows a Member State that recognises a systemic risk buffer (SyRB) to apply the SyRB rate set by another Member State, to domestically authorised institutions, for exposures located in the Member State that sets that rate. In accordance with Article 134(5) of the CRD, Member States that set a SyRB may also ask the ESRB to issue a recommendation as referred to in Article 16 of Regulation (EU) No 1092/2010 to one or more Member States which may recognise the SyRB rate. The ESRB Recommendation on voluntary reciprocity ESRB/2015/2 was issued to support effective macroprudential policy in Europe and to set out the procedure for voluntary recognition of measures such as the SyRB, measures under Article 458 of the Capital Requirements Regulation (CRR) and other national measures that have not been harmonised under Union law. 

Authorities have to decide whether and how to recognise a macroprudential measure activated in another Member State. Recently, due to different views regarding the interpretation of  the relevant CRD provisions, the question arose as to whether competent or designated authorities in a Member State that recognised a systemic risk buffer, may require domestically authorised parent institutions to comply with the recognised SyRB rate set by another Member State on a consolidated basis, thereby including the exposures held by their subsidiaries established in the activating Member State.

Article 133(4) of the CRD states that the relevant competent or designated authority, as applicable, may require institutions to maintain a SyRB on an individual, consolidated, or sub-consolidated basis. With regard to the recognition of a SyRB doubts were raised whether, as Article 134 of the CRD does not give any guidance on the level of consolidation of a recognised SyRB rate, Article 133(4) of the CRD is also applicable when recognising a SyRB set by authorities of another Member State.

By not recognising macroprudential requirements at the highest level of consolidation (group level), namely excluding the exposures held by subsidiaries in the Member State that sets the buffer rate, systemic risks which may have an unwarranted impact on the resilience of banking groups are not taken into account and competition in the internal market may also be distorted. First, a banking group may not only be exposed to a macroprudential or systemic risk in another Member State through branches and direct cross-border activity but also through its subsidiaries, as the parent institutions may be effectively obliged to ensure the adequate capitalisation of their subsidiaries or to absorb losses incurred by their subsidiaries. If the scope of reciprocation does not include macroprudential requirements applied to subsidiaries in the Member State that sets the buffer rate, systemic or macroprudential risks from those exposures may not be reflected in the consolidated loss-absorbing requirements of the parent institution in the home country.

As an example, consider bank A authorised in Member State X with a subsidiary B authorised in Member State Y that has introduced a SyRB. The SyRB in Member State Y applies to domestically authorised institutions on a consolidated basis. Bank A has the following exposures which are potentially relevant for the recognition of the SyRB set by Member State Y:

• through branches and direct lending in Member State Y:              100 EUR

• through subsidiary B authorised in Member State Y:                       500 EUR

When the macroprudential authority in country Y asks for reciprocity for the SyRB, and the macroprudential authority in country X decides to reciprocate, a question arises whether the measure should apply (i) only to bank A’s exposures through branches and direct lending (100 EUR), or (ii) also to Bank A’s exposures through the subsidiary (500 EUR). If not applied on a consolidated basis, the recognition of the SyRB would cover only the exposures of bank A held through branches and direct lending in Member State Y, i.e. 100 EUR. In other words, bank A in Member State X would not be subject to any capital requirement on a consolidated basis for its exposures to systemic or macroprudential risk in Member State Y incurred via its subsidiary B (amounting to 500 EUR). Hence, bank A would face a lower capital requirement at group level than if the exposures had instead been held through branches or direct lending in country Y and a lower consolidated capital requirement than when both parent and subsidiary were authorised in Member State Y. In addition, such discrepancies might trigger strategic asset allocation decisions within groups amplifying abovementioned issues in terms of loss absorbing capacity at consolidated level.

Moreover, if the authorities in Member State X were not able to require the application of the recognised SyRB of Member State Y on a consolidated basis and on the basis of all exposures held by a banking group irrespective of the legal status and location of the intragroup financial service provider that holds the respective exposure, there would be no authority in the internal market able to impose such a requirement, as the authorities of Member State Y clearly have no jurisdiction over a banking group authorised in Member State X. As a result, it would not be possible, within the internal market, to ensure an equal treatment of banking groups operating only within Member States and banking groups operating across borders.

Not applying a recognising measure at the same level of consolidation could thus distort competition in the internal market and result in insufficient resilience of banking groups that do not apply a SyRB recognising a SyRB in another Member State on a consolidated basis. The ESRB therefore started to specify in its Recommendations amending Recommendation ESRB/2015/2 whether Member States should recognise another Member States’ macroprudential measure on an individual basis, on a sub-consolidated basis, and/or on a consolidated basis (at group level). It has done so, for the first time, in Recommendation ESRB/2023/13 in relation to national measures activated by Denmark and Portugal and in Recommendation ESRB/2024/2 on the recognition of the Italian SyRB, by  recommending Member States to recognise the respective measure by applying it also on a consolidated basis, hence also including exposures through subsidiaries. The implementation of those Recommendations would ensure that capital requirements at the group level are adequate in view of the systemic or macroprudential risks to which the parent is exposed through its subsidiaries. 

Against this background, clarification is sought through the Single Rulebook Q&A tool, whether the current legal framework of the CRD permits national authorities to require the application of recognised macroprudential measures also on a consolidated basis. Such a requirement would be in line with Article 133(4) of the CRD, which states that a SyRB can be applied on an individual, sub-consolidated or consolidated basis.