ESRB recommends EU-wide reciprocation of Estonia’s 1% systemic risk buffer rate
Today the European Systemic Risk Board (ESRB) has published a Recommendation for the EU-wide reciprocation of Estonia’s 1% systemic risk buffer rate. Recommendation ESRB/2016/4 seeks to ensure that Estonia’s 1% systemic risk buffer rate applies not only to domestic exposures of credit institutions authorised in Estonia, but also to EU banks’ exposures to Estonia through branches in that country or EU banks’ direct cross-border exposures to Estonia. It thereby enhances the effectiveness and consistency of macroprudential policy in the EU and contributes to a level playing field in the Single Market.
On 26 April 2016 Eesti Pank requested the ESRB to recommend to other Member States the reciprocation of the 1% systemic risk buffer rate that Estonia requires its banks to maintain. After considering the cross-border implications, the General Board of the ESRB decided on 24 June 2016 to include the Estonian measure in the list of macroprudential policy measures to be reciprocated under Recommendation ESRB/2015/2.
ESRB Recommendation (ESRB/2015/2) provides details of the rationale behind the reciprocation of macroprudential policy measures. In particular, in a highly integrated financial market such as in the EU, where financial intermediaries operate across borders, non-reciprocation could lead to macroprudential policy measures being circumvented and undermine a level playing field among financial intermediaries. For that reason, the ESRB recommends an approach that is based on two main pillars, namely:
- a systematic assessment of the cross-border effects of macroprudential policy; and,
- a coordinated policy response in the form of voluntary reciprocity for macroprudential policy measures when needed.
It is important that these pillars are implemented consistently throughout the EU.
The ESRB recommends the reciprocation of national macroprudential policy measures via amendments to the main reciprocity framework (Recommendation ESRB/2015/2). After Recommendation ESRB/2016/3 for the reciprocation of a macroprudential measure taken by the Belgian authorities, Recommendation ESRB/2016/4 is the ESRB’s second Recommendation which provides for the reciprocation of a national macroprudential policy measure.
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The Belgian measure consisted of a 5-percentage-point risk-weight add-on applied to Belgian mortgage loan exposures of credit institutions using the internal-ratings based approach.