Reciprocation of measures

Macroprudential measures taken in one Member State often apply only to the exposures of financial institutions in that Member State, i.e. domestic banks and subsidiaries of foreign banks. Therefore, such measures generally do not apply to the exposures of other EU financial institutions in other Member States that they hold either through branches in that Member State or directly across borders. Reciprocity is the policy instrument that ensures that these exposures, which would otherwise not be subject to these measures, are also covered.

Reciprocation occurs when the relevant authority in one Member State applies the same, or equivalent, macroprudential measure as that activated in another Member State in order to address a risk related to a specific exposure. Financial institutions in both countries are therefore affected in a similar way by that risk. Reciprocation should ultimately ensure that the macroprudential measure applies to all financial institutions within the EU exposed to the targeted risk, regardless of where they are located.

The reciprocation of macroprudential measures enhances the effectiveness and consistency of macroprudential policy in the EU. It also contributes to a level playing field in the Single Market.

The ESRB’s reciprocity framework

At the end of 2015, the ESRB put in place a framework of voluntary reciprocity for macroprudential policy measures. The reciprocity framework lays the basis for a coordinated approach to the reciprocation of macroprudential measures for which EU legislation does not foresee compulsory reciprocation. The reciprocity framework is codified in three documents: (i) Recommendation ESRB/2015/2; (ii) Article 5 of Decision ESRB/2015/4; and (iii) Chapter 11 ("Cross-border effects of macroprudential policy and reciprocity") of the ESRB Handbook on operationalising macroprudential policy in the banking sector. When reciprocating, Member States may exempt financial institutions with non-material exposures (so-called de minimis exemption). For that purpose, Member States may use a materiality threshold above which exposures are deemed material. To harmonise the application of the de minimis exemption, the framework was amended by Recommendation ESRB/2017/4.

The reciprocation process is started by a formal request from the relevant authority initially activating the measure. The request specifies an institution-level maximum materiality threshold to guide the application of the de minimis exemption. If deemed justified, the ESRB will issue a recommendation. This recommendation amends Recommendation ESRB/2015/2 to include the macroprudential policy measures to be reciprocated.

In response to the ESRB recommendation, Member States will subject the financial institutions in their jurisdiction to the same, or equivalent, macroprudential measure. If applying the de minimis principle, reciprocating, Member States may set a lower threshold than requested by the activating Member State. The degree of reciprocation can also vary as reciprocating measures may cover both exposures held through branches and direct cross-border exposures to that Member State, or only one of the two. In certain situations, Member States may also decide not to reciprocate, but then need to explain their decision (“act or explain” mechanism of ESRB recommendations).

The pages below provide information on the macroprudential measures that have been recommended for reciprocation by the ESRB under its reciprocity framework and their follow-up by Member States. For the countercyclical capital buffer, compulsory and automatic reciprocation is provided for by Union law up to a buffer rate of 2.5%.

Active measures recommended for reciprocation

Combined risk-weight increase for mortgage loans
Tighter large exposure limit for highly-indebted large NFCs
25% risk weight floor for mortgage loans

Expired measures recommended for reciprocation

5-percentage-point risk-weight increase for mortgage loans
1% systemic risk buffer rate
15% risk weight floor for mortgage loans