On 12 February 2020, the European Banking Authority (EBA) launched a consultation on draft guidelines on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer (SyRB) in accordance with the Capital Requirements Directive V (CRD).
The EBA is mandated under Article 133(6) of the CRD V to develop these draft guidelines. The guidelines aim to set a common framework to harmonise the design of the appropriate subsets of sectoral exposures to which a SyRB may be applied, thus facilitating a common approach throughout the EU.
This consultation is setting pre-determined dimensions or components of exposures, which competent or designated authorities should use when defining a subset of sectoral exposures in the application of a SyRB. A pre-condition when defining a subset of sectoral exposures is its systemic relevance according to a qualitative and quantitative assessment conducted by the relevant authority. The consultation recommends three criteria to be used in such assessments: size, riskiness and interconnection.
The draft guidelines also highlight how the enhancements in the scope of the SyRB introduced under the CRD V (the ability to use multiple SyRBs and the introduction of domestic sectoral SyRBs targeting specific sectors or subsets of exposures, which was made necessary due to the amendment in CRD V where pillar 2 capital requirements could no longer be used for macro-prudential purposes) have increased the flexibility of the SyRB, but have also brought potential challenges. For this reason, the relevant authority should avoid inconsistent uses of instruments and unwarranted interactions by ensuring that other active macro-prudential measures are taken into account when calibrating and activating the sectoral SyRB.
The deadline for comments on the consultation is 12 May 2020. The final guidelines will apply for 29 December 2020.