Principles for macro-prudential policies in EU legislation on the banking sector

The European Systemic Risk Board (ESRB) has today published a letter aimed at helping EU legislators to further develop the legal basis, within the current proposals for the Capital Requirements Directive and Regulation (CRD/CRR), for policies to address future threats to financial stability in the European Union.

The ESRB supports the establishment of a set of commonly defined prudential rules on the supervision of banks within the EU, based on the full implementation of the Basel III agreement as endorsed by the leaders of the G20.

At the same time, the ESRB considers it essential from a macro-prudential perspective that these rules can be tightened temporarily, by both EU and Member State authorities, in order to tackle future threats to the financial system and to the flow of credit to the economies of the EU. That calls for a framework with the legislative proposals that provides for discretion – with safeguards – for these authorities to act in this way where necessary.

The ESRB has identified three principles to underpin this macro-prudential framework: flexibility to undertake a broad range of actions; scope to act early and effectively; and efficient coordination of actions by Member States. As the EU’s macro-prudential oversight authority, the ESRB is well placed to coordinate matters and is working to further the arrangements and tools needed to address future threats and vulnerabilities.

The ESRB’s views were contained in a letter sent by Mario Draghi, Chair of the ESRB to EU legislators.