Reciprocation of measures

Macroprudential measures taken in one Member State (the activating Member State) often apply only to the exposures of financial institutions located 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 located in other Member States that they hold either through branches in the activating Member State or directly across borders. Reciprocity is the policy instrument that ensures that these measures also apply to the exposures, of these other financial institutions, which would otherwise not be covered.

Reciprocation occurs when the relevant authority in the reciprocating Member State applies a macroprudential measure that is the same as or equivalent to a measure taken in the activating 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 same macroprudential measure applies to all financial institutions within the EU which are exposed to the risk targeted by the measure, 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 means of a formal request submitted to the ESRB by the authority that activated the initial measure. The request specifies an institution-level 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 that are to be reciprocated.

In response to the recommendation issued by the ESRB, reciprocating Member States will apply the same or an equivalent macroprudential measure to the financial institutions in their jurisdictions. 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 (i) exposures held through branches, or (ii) direct cross-border exposures to the activating Member State, or (iii) both of these two types of exposure. In certain situations Member States may also decide not to reciprocate, in which case they must explain their decision (in accordance with the “act or explain” mechanism of ESRB recommendations).

The pages below provide information on the macroprudential measures that the ESRB has recommended for reciprocation under its reciprocity framework and their follow-up by Member States. In the case of the countercyclical capital buffer, compulsory and automatic reciprocation is provided for by Union law up to the 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 non-finacial corporations
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