Report on cyclicality of capital requirements

A report was published which aims at clarifying whether risk-sensitive bank capital requirements as laid down in the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD) create unintended pro-cyclical effects by reinforcing the endogenous relationships between the financial system and the real economy. The European Systemic Risk Board (ESRB) and the European Central Bank (ECB) have contributed to the report on cyclicality of capital requirements, coordinated by the European Banking Authority (EBA), as mandated by Article 502 of the CRR.

Against the background of the weak evidence on the existence of pro-cyclical effects due to the CRDIV/CRR framework, this report recommends that the EU retains its current risk-sensitive framework for bank regulatory capital. If pro-cyclicality risks were to become more material, the EU financial regulatory framework has various tools at its disposal, which could be used. For those purposes, the impact of the EU bank regulatory framework on the economic cycle should be monitored regularly and the potential impact, effectiveness and efficiency of counter-cyclical instruments should be further analysed.

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