Abstract
Amorello offers an overview of the key concepts of macroprudential policy through the analysis of its legal sub-components. Strategies, indicators, and tools along with the channels of systemic instability are summarized to outline the theoretical underpinnings of the macroprudential dimension. A legal inquiry deconstructing the economic concepts of macroprudential policy sheds some light on its blurred policy perimeter, allowing the reader to find one broad definition of macroprudential policy that may best reconcile its economic foundations with the corresponding regulatory instruments. In view of these premises, the EU macroprudential regulatory framework is preliminarily examined.
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Notes
- 1.
Clement (2010), p. 59.
- 2.
Caruana and Cohen (2014), p. 16.
- 3.
IMF (2013c), p. 53.
- 4.
Clement (2010), p. 60.
- 5.
IMF (2013c), p. 53.
- 6.
See Informal Record of the 16th meeting of the Committee on Banking Regulations and Supervisory Practices held in Basel on 28–29 June 1979. (BS/79/42). BIS Archives—Banking Supervision, Informal Record, file 2.
- 7.
Idem.
- 8.
Clement (2010), p. 60.
- 9.
See The use of prudential measures in the international banking markets, 24 October 1979, pp. 1–2. BIS Archives 7.18(15)—Papers Lamfalussy, LAM25/F67.
- 10.
Clement (2010), p. 61.
- 11.
The report submitted to Lamfalussy acknowledged three examples of macroprudential issues that could not be solved by a microprudential approach: (1) the growth of the overall market, (2) the perception of risk, and (3) the perception of liquidity. For better insights on this relevant issue, see Willke, Becker, and Rostásy (2013).
- 12.
Report for the Working Party on possible approaches to constraining the growth of banks’ international lending, 29 February 1980, BIS Archives 1.3a(3)J—Working Party on constraining growth of international bank lending, vol. 2. For more details, see also Clement (2010), p. 61.
- 13.
We refer to BIS (1986).
- 14.
Idem, p. 2. For further details cf. Clement (2010), p. 62.
- 15.
The report is BIS (1992).
- 16.
- 17.
A bank holding company is a parent company of a banking group that does not necessarily provide banking services itself. In the United States, the prudential regulation of such entities is laid down in 12 CFR Part 225 (Regulation Y).
- 18.
Banerjee (2011), p. 4.
- 19.
We refer to BIS (1997), p. 147.
- 20.
For the whole speech, see Crockett (1997).
- 21.
For insights, see Clement (2010), pp. 63–64.
- 22.
David Clementi (2001), p. 4.
- 23.
We paraphrase Tarullo (2014), p. 48.
- 24.
- 25.
Knot (2014), p. 25.
- 26.
For a biography of Minsky and a thorough analysis of his scholarship, see Mehrling (1999), pp. 129–158.
- 27.
- 28.
- 29.
We refer to the ‘(Neo-)Classical Theory of Economics’ according to which the economy is capable of self-regulating. For a detailed historical overview of the Classical Theory of Economics, see Sowell (2007). In addition, an interesting overview from an ‘Austrian Perspective’ is given by Rothbard (1995).
- 30.
Kregel (2014), p. 219.
- 31.
On the issue, see Nersisyan and Wray (2010), where the authors identify the reasons of the financial crisis in the shift to the shadow banking system and the creation of what Minsky called the money manager phase of capitalism with a rapid growth of leverage and speculative financing.
- 32.
Minsky (1992), p. 4.
- 33.
Minsky defines the economic units as hedge when they can fulfill all of their contractual payment obligations by their cash flow; the speculative units, instead, are those units that cannot repay the principle out of income cash flows and need to roll over their existing liabilities, while Ponzi units are those unable to cover neither the repayment of principle nor the interest due on their own outstanding debts. Ponzi units must either sell assets or borrow. For details, see Minsky (1992), p. 7.
- 34.
Minsky (1976), pp. 8–9.
- 35.
Idem, p. 9.
- 36.
For further insights, see Siqiwen (2010), pp. 256–258.
- 37.
Schmidt and Thatcher (2013), p. 216.
- 38.
Minsky (1992), p. 4.
- 39.
See Minsky (1986), p. 237, according to which: ‘success breeds a disregard of the possibility of failure’.
- 40.
Minsky (1976), p. 3.
- 41.
For details, see Esen and Binatlı (2012).
- 42.
Kregel (2014), p. 224.
- 43.
We refer to: Minsky (1970).
- 44.
Idem, p. 63.
- 45.
Idem, p. 64.
- 46.
Idem, p. 64. On the issue at hand, see also Phillips (1997).
- 47.
- 48.
Minsky (1975), p. 1.
- 49.
Idem, p. 1.
- 50.
Idem, p. 1.
- 51.
Idem, p. 2.
- 52.
Minsky (1970), p. 20.
- 53.
Phillips (1997), p. 513.
- 54.
Galati and Moessner (2013), p. 847.
- 55.
Idem, p. 847.
- 56.
See Borio (2003).
- 57.
Idem, p. 2. For further details, see also Table 1 in Galati and Moessner (2013), p. 849.
- 58.
Idem, p. 2.
- 59.
Noyer (2014), p. 7.
- 60.
Angeloni (2014), p. 73.
- 61.
- 62.
For an analytical insight of the literature investigating the concept of financial stability, among others, see Alawode and Al Sadek (2008).
- 63.
Galati and Moessner (2013), p. 848. Among the economists of the first group, Crockett (1997) recognizes financial stability in ‘that the key institutions in the financial system are stable, in that there is a high degree of confidence that they continue to meet their contractual obligations without interruption or outside assistance; and that the key markets are stable, in that participants can confidently transact in them at prices that reflect the fundamental forces and do not vary substantially over short periods when there have been no changes in the fundamentals’. According to Padoa-Schioppa (2002), ‘financial stability is a condition where the financial system is able to withstand shocks without giving way to cumulative processes, which impair the allocation of savings to investment opportunities and the processing of payments in the economy’, thereby posing the emphasis on the shock-absorbing capacity of the financial system. Laker (1999) further suggests that ‘the objective of financial system stability could therefore be defined, in broad terms, as the avoidance of disruptions to the financial system that are likely to cause significant costs to real output’. He went on to say that ‘such disruptions might have their origins in difficulties facing financial institutions or in disturbances in financial markets’.
- 64.
Bank of England (2009), p. 10.
- 65.
- 66.
Das, Quintyn, and Chenard (2004), p. 6.
- 67.
Das, Quintyn, and Chenard (2004), p. 6.
- 68.
- 69.
- 70.
For example, Mishkin (1999) argues that ‘financial instability occurs when shocks to the financial system interfere with information flow so that the financial system can no longer do its job of channeling funds to those with productive investment opportunities’. Also Davis (2001) notes that financial instability means ‘a major collapse of the financial system, entailing inability to provide payments services or to allocate credit to productive investment opportunities’.
- 71.
This is the case of Ferguson (2003) that refers to financial instability as ‘a situation characterized by […] three basic criteria: (1) some important set of financial asset prices seem to have diverged sharply from fundamentals; and/or (2) market functioning and credit availability, domestically and perhaps internationally, have been significantly distorted; with the result that, (3) aggregate spending deviates (or is likely to deviate) significantly, either above or below, from the economy’s ability to produce’.
- 72.
- 73.
See Borio (2003), p. 4, who quotes Hoggarth, Reis, and Saporta (2001). As argued by the latter authors, the cumulative output losses incurred during a banking crisis may be large, roughly 15–20% of annual GDP, on average. On the issue, cf. also Schuknecht (2002) who conducts a comprehensive analysis of the fiscal costs of financial instability.
- 74.
- 75.
Caruana and Cohen (2014), p. 16.
- 76.
FSB, IMF, and BIS (2011), p. 2.
- 77.
- 78.
Billio, Getmansky, Lo, and Pelizzon (2012), pp. 535–559.
- 79.
Billio, Getmansky, Lo, and Pelizzon (2010), p. 1.
- 80.
Inter alia, see Bisias, Flood, Lo, and Valavanis (2012), p. 1.
- 81.
De Bandt and Hartmann (2000), p. 10.
- 82.
ECB (2009), p. 134.
- 83.
De Bandt and Hartmann (2000), p. 10.
- 84.
Idem, p. 11.
- 85.
Idem, p. 11.
- 86.
Idem, p. 11.
- 87.
ECB (2009), pp. 134–135.
- 88.
Borio (2003), p. 3.
- 89.
Idem, p. 3. For example, see Martinez-Miera and Suarez (2012), analyzing the role of banks in generating endogenous systemic risk.
- 90.
See The Warwick Commission (2009), p. 13.
- 91.
Idem, p. 13.
- 92.
- 93.
Borio (2003), pp. 2–3.
- 94.
Kellermann, de Haan, and de Vries (2013), p. 214.
- 95.
Borio (2003), p. 3.
- 96.
- 97.
Allen and Babus (2009), p. 859.
- 98.
- 99.
- 100.
- 101.
- 102.
See Tumpel-Gugerell (2009).
- 103.
Allen, Babus, and Carletti (2010), p. 2.
- 104.
See Haldane (2009).
- 105.
- 106.
See IMF (2013b), pp. 6–7.
- 107.
For insights, see Hanson, Kashyap, and Stein (2011), pp. 5–7.
- 108.
- 109.
- 110.
- 111.
On the issue in general, see IMF (2011a), p. 113.
- 112.
Brunnermeier and Oehmke (2013), pp. 484–485.
- 113.
- 114.
See Borio (2014).
- 115.
Caruana and Cohen (2014), p. 16.
- 116.
See Visco (2011).
- 117.
IMF (2013b), pp. 6–7.
- 118.
- 119.
Jeanneau (2014), pp. 48–49.
- 120.
For example, see the Recital (3) of the Directive 2014/49/EU on Deposit Guarantee Schemes. On this issue, see also Bank of England, HM Treasury, FSA (2008).
- 121.
For example, see Aziz (2007).
- 122.
Among others, see Section 4 of the UK Banking Act (2009).
- 123.
See BCSB (2009), p. 11. See also the Proposal for a Regulation of the European Parliament and of the Council on structural measures improving the resilience of EU credit institutions COM/2014/043 final—2014/0020 (COD), whose aim is to enhance the financial stability in the Union by means of structural reform of large banks.
- 124.
See the Recital (18) of the Directive 2014/59/EU establishing a common framework for the recovery and resolution of credit institutions (BRRD).
- 125.
Jeanneau (2014), pp. 48–49. The author provides a list of examples in which the multiple dimensions of financial stability may conflict with each other.
- 126.
See the Recital (67) of the BRRD on the bail-in tool.
- 127.
- 128.
- 129.
FSB, IMF, and BIS (2011), p. 4.
- 130.
Dodd-Frank Wall Street Reform and Consumer Protection Act. Public Law, No. 111–203. H.R. 4173 (2010).
- 131.
For details, see Murphy (2013), pp. 4–9. Although the Dodd-Frank Act does not provide any general definition of systemic risk, it uses this notion several times when attributing the tasks of the newly established macroprudential agency, which is the Financial Stability Oversight Council (FSOC). For example, Section 112 (b) (1) requires member agencies of the FSOC to submit a signed statement to Congress if the agency believes that all reasonable steps are being taken ‘to ensure financial stability and to mitigate systemic risk that would negatively affect the economy’. It seems therefore clear that even in the United States, the primary objective of the macroprudential oversight is to assess and mitigate systemic risk. On this issue, see also Napoletano (2014), pp. 42–47.
- 132.
See Financial Services Act 2012 (Chapter 21).
- 133.
- 134.
See Section 9 (C2) of the Financial Services Act 2012.
- 135.
A general description of mandate, tasks, and governance arrangements for macroprudential policy is provided in the next section of this volume.
- 136.
See Article 3 of the Regulation (EU) No. 1092/2010.
- 137.
See the Recital (10) of the Regulation (EU) No. 1092/2010.
- 138.
See Article 2(c) of the Regulation (EU) No. 1092/2010. In addition, see Article 3(10) of the Directive 2013/36/EU. On the issue, see also Głuch, Škovranová, and Stenströmp (2013), p. 2.
- 139.
See Visco (2011), p. 129, arguing that systemic risk presents a number of challenges to the policymaker given its difficulty in being measured and spotted ex ante.
- 140.
A primary investigation on the concept of systemic risk under a legal standpoint is offered by Schwarcz (2008), pp. 193–249.
- 141.
- 142.
- 143.
- 144.
- 145.
Caruana and Cohen (2014), p. 17.
- 146.
- 147.
Caruana and Cohen (2014), p. 17.
- 148.
Idem, p. 17.
- 149.
Idem, p. 18.
- 150.
See Borio (2003), p. 10.
- 151.
Caruana and Cohen (2014), p. 18. For a survey on capital surcharges, see Board of Governors of the Federal Reserve System, Draft Notice of Proposed Rulemaking—Capital Surcharge for Systemically Important U.S. bank Holding Companies, 9 December 2014; On the concept of ‘loss-absorbing capacity’, see BIS (2013) and FSB (2014).
- 152.
In detail, see the ESRB Recommendation of 4 April 2013 on intermediate objectives and instruments of macro-prudential policy (ESRB/2013/1). Section I—Recommendation A. See also ESRB (2014a), pp. 7–9.
- 153.
See EBA (2014).
- 154.
It must be noted that the same legal categories have been established in a number of EU countries. For example, the Ausschuss für Finanzstabilität, the German national macroprudential authority, published in 2013 its macroprudential strategy including five risk factors which are close to the ESRB’s proposed risks. The list of these systemic risk factors is laid down in paragraph 2(8) of the macroprudential policy strategy and includes (a) excessive credit growth and leverage (in the financial system or other sectors); (b) excessive maturity/currency/liquidity transformation; (c) excessive direct and indirect exposure concentrations (the latter owing to interconnectedness), including disruptions caused by the disorderly market exit of systemically important financial institutions as a risk factor; (d) systemic impact of misaligned incentives and moral hazard—this includes insufficient resilience of systemically important financial intermediaries as a risk factor; (e) systemic impact of disruptions to financial market infrastructures.
- 155.
The EBA prefers to distinguish between structural and cyclical risks, putting them into two separate categories. However, since there is no clear distinction between them, we prefer to use only one category for both risks. The ESRB uses the same approach, considering both within the same category.
- 156.
ESRB (2014a), p. 8.
- 157.
ESRB (2014a), p. 13.
- 158.
Narodna Banka Slovenska (2014), p. 4.
- 159.
ESRB (2014a), p. 10.
- 160.
ESRB (2014a), p. 10.
- 161.
Idem, pp. 11–12.
- 162.
On the issue, see the EBA Technical Standards and Guidelines on large exposure, for example, CEBS Guidelines on the implementation of the revised large exposures regime (11 December 2009). For further insights, see also Tucker et al. (2013), pp. 193–194.
- 163.
ESRB (2014a), p. 12.
- 164.
See EBA (2014), p. 11.
- 165.
For details, see BCBS (2016), p. 3.
- 166.
For a thorough analysis, see ESRB (2015).
- 167.
ESRB (2014a), p. 7.
- 168.
For details, see EBA (2014), p. 14, arguing that ‘the instrument’s purpose with respect to is macro and micro use should be unambiguous and not subject to interpretation, but also that the risks addressed (structural/cyclical risks) and the scope of the instrument (bank specific/systemic wide) are adequately specified’. The EBA also states that ‘the goal and purpose of each macroprudential rule should be clearly defined. […] all markets participants and regulators (competent and designed) should have the same understanding of the risks and exposures that can be covered by the rule, and about the situations in which the rule may be applied’.
- 169.
- 170.
Although the macroprudential objectives hereafter proposed are not entirely satisfactory, see also Nier (2011), pp. R7–R8.
- 171.
Kawai and Pomerleano (2010), p. 7.
- 172.
See FSB, IMF, and BIS (2011), pp. 3–4.
- 173.
On this important topic, see Domanski and Ng (2011), p. 89, according to which elements of a macroprudential policy framework should be ‘an objective, diagnostic tools, instruments, an operating strategy, and governance arrangements’.
- 174.
See Collin, Druant, and Ferrari (2014), p. 87.
- 175.
According to ESRB (2014a), a macroprudential policy strategy follows four stages and is designed to link together objectives to indicators and instruments.
- 176.
For a discussion of the ideal macroprudential framework, see Angelini, Neri, and Panetta (2011), p. 9.
- 177.
Blancher, Mitra, Morsy, Otani, Severo, and Valderrama (2013), p. 4.
- 178.
- 179.
- 180.
See Agresti, Baudino, and Poloni (2008); Schwaab, Koopman, and Lucas (2011). See also the final results of the Report on the Macro-prudential Research Network (MARS), published by the ECB on 23 June 2014. This report is available online at http://www.ecb.europa.eu/press/pr/date/2014/html/pr140623.en.html. Instead, for an overview of the international and European developments of systemic risk indicators, see Israël, Sandars, Schubert, and Fischer (2013).
- 181.
IMF (2013a), p. 16.
- 182.
ESRB (2014a), pp. 39–40.
- 183.
For details, see IMF (2011c), p. 1.
- 184.
Blancher, Mitra, Morsy, Otani, Severo, and Valderrama (2013), p. 7.
- 185.
IMF (2013a), p. 16.
- 186.
See Jahn and Kick (2012), p. 1.
- 187.
For example, see Deutsche Bundesbank (2013), p. 39.
- 188.
- 189.
Houben, van der Molen, and Wierts (2012), p. 14.
- 190.
Banco De Portugal (2014a), p. 63.
- 191.
ESRB (2014b), p. 6.
- 192.
See Idem, p. 14.
- 193.
Oet, Ong, and Gramlich (2013), p. 1. See also Recommendation of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macroprudential policy (ESRB/2013/1), sub-recommendation C(2).
- 194.
- 195.
See Coglianese, Kilmartin, and Mendelson (2009), pp. 927–928.
- 196.
For details, see Idem, p. 928.
- 197.
Knot (2014), p. 27.
- 198.
Credit leakages occur when regulatory interventions are able to influence the aggregate supply of credit in the banking sector, thereby incentivizing other less regulated credit suppliers to substitute banks in the supply of credit. On the risks associated with credit leakages after the implementation of macroprudential rules, for example, see Jeanne and Korinek (2014), pp. 166–167. See also Arregui, Beneš, Krznar, Mitra, and Santos (2013), pp. 30–33; Aiyar, Calomiris, and Wieladek (2014).
- 199.
Lim, Columba, Costa, Kongsamut, Otani, Saiyid, Wezel, and Wu (2011), p. 4. The authors argued that ‘Caps on the LTV and DTI […] are frequently applied together by country authorities to curb rapid credit growth in the real estate sector (p. 12)’.
- 200.
CGFS (2010), p. 2.
- 201.
Idem, p. 3. In this regard, part of the recent economic literature acknowledges the difference between structural and time-varying macroprudential instruments, thereby overcoming the traditional distinction, as seen above, between cross-sectional and time dimension of macroprudential policy. On this topic, see also Constâncio (2014); Tarullo (2014).
- 202.
Lim, Columba, Costa, Kongsamut, Otani, Saiyid, Wezel, and Wu (2011), p. 8.
- 203.
For details, see Caruana (2014), pp. 3–4.
- 204.
For a discussion between economists and policymakers on this particular topic, see Knot (2014), pp. 29–31.
- 205.
Idem, p. 29.
- 206.
For example, see Kannan, Rabanal, and Scott (2009), p. 20, according to which the ‘inflexible use of rigid macroprudential rules could sometimes result in policy errors’.
- 207.
- 208.
Banco de Portugal (2014b), p. 9.
- 209.
For example, to deal with risks caused by SIIs, national authorities may use systemic risks buffers to address systemic risks that cannot be sufficiently mitigated through the standard capital requirements. On the issue, see ESRB (2014b), p. 13.
- 210.
- 211.
On the issue, see in particular Zhou (2010).
- 212.
- 213.
For a thorough analysis of credit rating agencies and the role in the financial crisis, see Hunt (2009), pp. 109–209; Partnoy (2010), pp. 116–131. See also Dennis (2009), pp. 1111–1150, where the author proves the underestimation of the risks of securities by credit rating agencies was a rational response to legal, regulatory, and market incentives prevalent at that time.
- 214.
- 215.
See Kern (2014), pp. 347–349.
- 216.
Alexander and Moloney (2011), p. viii.
- 217.
- 218.
- 219.
For evidences of strong procyclicality among financial players, see Papaioannou, Park, Pihlman, and van der Hoorn (2013).
- 220.
Idem, p. 125. On the issue, cf. also McDonnell (2013), pp. 1597–1651.
- 221.
- 222.
In general, see Crockett (1997).
- 223.
- 224.
Goodhart and Perotti (2014), p. 34.
- 225.
Angeloni (2014), p. 73.
- 226.
Schwarcz (2014), p. 5.
- 227.
See Jácome and Nier (2011).
- 228.
de Larosière Report (2009), p. 13.
- 229.
Idem, p. 11.
- 230.
Idem, pp. 16–17.
- 231.
Idem, p. 44.
- 232.
For an in-depth analysis of the Larosière Report, see Nagy, Pete, Benyovszki, Petru, and Györfy (2010), pp. 5–20.
- 233.
de Larosière Report (2009), p. 46.
- 234.
Idem, p. 15.
- 235.
See Whelan (2009), p. 2, where the author favors in addition a regulatory structure in which monetary policy and macroprudential supervision are conducted under the same roof.
- 236.
See European Commission (2009a).
- 237.
See European Commission (2009b).
- 238.
The European System of Financial Supervision (ESFS) is the European supervisory network comprising the three ESAs, the Joint Committee of the European Supervisory Authorities, and the national supervisors. It also includes the ESRB (see Article 2(2) of ESAs Regulation). The objective of this network is to ensure the adequate application of the rules to the financial sector is adequate as to preserve the financial stability, ensure confidence in the financial system as a whole, and enhance protection for the customers of financial services.
- 239.
Beroš (2010), p. 49.
- 240.
See BCBS (2009).
- 241.
See G20 Seoul Summit Document, 11–12 November 2010, paragraph 41. Available online at https://g20.org/wp-content/uploads/2014/12/Seoul_Summit_Document.pdf.
- 242.
See BCBS (2010a).
- 243.
For a critical discussion on the implementation of Basel III standards in the EU banking framework, see Atik (2014), pp. 287–345. See also Greenwood and Roederer-Rynning (2014), pp. 325–338, where the authors discuss the role of the European Parliament in the process of adopting the Basel III framework, along with the Europeanization of the relevant banking standards.
- 244.
Although this harmonization process seems to be consistent across Europe, this cannot be considered an accomplished project. Several provisions leave room to national discretion in the implementation phase that could eventually harm the uniformity of the macroprudential measures across the EU Member States. For a critical discussion of this issue, see Babis (2015), pp. 779–803.
- 245.
- 246.
See ESRB (2014b), p. 18.
- 247.
See Recital (9) of ESRB Recommendation on guidance for setting countercyclical buffer rates of 18 June 2014 (ESRB/2014/1). For a discussion of the use of the countercyclical capital buffer, see Detken, Weeken, Alessi, Bonfim et al. (2014).
- 248.
According to Article 140 CRD IV, the institution-specific countercyclical capital buffer rate is the weighted average of the countercyclical buffer rates that apply in the jurisdictions where the relevant credit exposures of the institution are located or are applied.
- 249.
See Article 130(1) CRD IV.
- 250.
ESRB (2014a), p. 29.
- 251.
Article 136(4) CRD IV.
- 252.
See Recital (3) of ESRB Recommendation on guidance for setting countercyclical buffer rates of 18 June 2014 (ESRB/2014/1).
- 253.
Article 136(2) CRD IV. According to this provision, ‘the buffer guide shall reflect, in a meaningful way, the credit cycle and the risks due to excess credit growth in the Member State and shall duly take into account specificities of the national economy. It shall be based on the deviation of the ratio of credit-to-GDP from its long-term trend’.
- 254.
Article 136 (3) CRD IV.
- 255.
Article 136 (5) CRD IV.
- 256.
Article 130 (2) CRD IV. If adopted, this exemption must be notified to the Commission, the ESRB, EBA and the national competent authorities concerned.
- 257.
For a more comprehensive examination of the G-SII and O-SII buffers, see ESRB (2014a), pp. 77–86.
- 258.
Article 131 (4) CRD IV.
- 259.
Article 131 (2) CRD IV.
- 260.
Article 162 (5) CRD IV.
- 261.
Article 131 (5) CRD IV.
- 262.
Article 131 (6) CRD IV.
- 263.
Article 133 (1) CRD IV. On the issue, see also ESRB (2014a), p. 80.
- 264.
Article 133 (3) CRD IV.
- 265.
Article 133 (10) CRD IV.
- 266.
See Article 133 (13)–(15) CRD IV.
- 267.
See Recitals (80) and (85) CRD IV.
- 268.
Article 129 (1) CRD IV.
- 269.
Article 129 (2) CRD IV.
- 270.
This is the Regulation (EU) No. 468/2014 of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation).
- 271.
See Article 129 (3) CRD IV.
- 272.
This is the Council Regulation (EU) No. 1024/2013 conferring specific tasks to the European Central Bank relating to the prudential supervision of credit institutions and establishing the Single Supervisory Mechanism.
- 273.
According to Recital (24): ‘Additional capital buffers, including a capital conservation buffer, a countercyclical capital buffer to ensure that credit institutions accumulate, during periods of economic growth, a sufficient capital base to absorb losses in stressed periods, global and other systemic institution buffers, and other measures aimed at addressing systemic or macroprudential risk, are key prudential tools.’
- 274.
EBA (2014), p. 24.
- 275.
For details, see BCBS (2003).
- 276.
See Article 123 of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions.
- 277.
See Article 97 CRD IV. For details on the SREP, see also EBA Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) of 19 December 2014 (EBA/GL/2014/13). For a general overview, see also Kern (2014), pp. 354–358.
- 278.
On the issue, see ESRB (2014a), pp. 134–137.
- 279.
Articles 97 (1)(b) and 98 (1)(j) CRD IV.
- 280.
EBA (2014), pp. 20–21.
- 281.
We refer to Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers, and capital conservation measures, Brussels, 23.11.2016 COM (2016) 854 final 2016/0364 (COD); and Proposal for a Regulation of the European Parliament and the Council amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and amending Regulation (EU) No. 648/2012, Brussels, 23.11.2016 COM (2016) 850 final 2016/0360 (COD).
- 282.
It is worth noting the position of the ECB on this amending proposal. Although supportive, the ECB states that removing Pillar 2 requirements should not result in authorities having insufficient tools to carry out their mandate and achieve their policy objectives. In particular, the ECB requires the macroprudential toolkit to be broadened and rendered since its effectiveness is especially important in a monetary union where macroprudential policies are needed to address country-specific or sector-specific imbalances, thereby playing a key complementary role in addressing the heterogeneity in financial and business cycles across EU Member States. For details, see Opinion of the European Central Bank of 8 November 2017 on amendments to the Union framework for capital requirements of credit institutions and investment firms (CON/2017/46), p. 5.
- 283.
See Recital (16) CRR.
- 284.
The procedure for notifying the relevant information and obtaining the approval by the Council is laid out in Article 458 CRR.
- 285.
This means that a CET 1 capital ratio may be increased above 4.5% of RWA, a Tier 1 capital ratio above 6% of RWA, and a total capital ratio above 8% of RWA. For further details, see ESRB (2014a), pp. 145–146.
- 286.
According to definition set out in Article 392 CRR, an institution’s exposure to a client is considered a large exposure where its value is equal to or exceeds 10% of its eligible capital. However, a cap for large exposures is provided by Article 395 CRR which states that institution’s large exposures to client or a connected group of clients must not exceed 25% of its eligible capital; for exposures to other banks, the value must not exceed 25% of the bank’s eligible capital or 150 million. Against this backdrop, the national macroprudential measure tightening large exposure requirements may be designed to (a) reduce the threshold of 10% to identify an exposure as ‘large’; (b) reduce the limits to large exposures or remove the exemptions; or (c) tighten the accounting rules to calculate large exposures. For more details, see ESRB (2014a), pp. 151–154.
- 287.
According to the ESRB, this implies higher frequency or granularity of disclosure. For details, see ESRB (2014a), pp. 154–157.
- 288.
This means an increase of the capital conservation buffer above 2.5% of RWA.
- 289.
This would imply the possibility to tighten all CRR/CRD microprudential capital requirements to target sectoral risks that may pose a threat to financial stability. On the issue, see ESRB (2014a), pp. 148–151.
- 290.
In particular, under this provision, the national macroprudential authority can temporarily increase risk-weights to target asset bubbles in the residential and commercial real estate sector. This may also be requested by national authorities pursuant to Article 103 CRD IV. Further, under Article 124 (2) CRR, competent authorities may require banks to apply higher risk-weights or stricter criteria for exposures fully secured by mortgages on immovable property, on the basis of financial stability considerations.
- 291.
As explained further below, these are the liquidity buffer requirements and the stable funding requirements.
- 292.
It must be noted, however, that the macroprudential nature of the LCR and NSFR is questionable. For example, Willem van den End and Kruidhof (2013), pp. 91–106, argue that the LCR is a microprudential instruments and in extremes scenarios the LCR can become a binding constraint that may hamper the stability of the financial system. Of the same opinion, Hartlage (2012), pp. 453–483, argues that the LCR may undermine effective liquidity management and thus foster system risk. Albeit praiseworthy, these considerations do not consider the flexibility provided by the CRR and the CRD IV in calibrating the LCR and the NSFR. National competent authorities, if deemed necessary, could always increase the minimum liquidity thresholds by using the Pillar 2 instruments or the CRR national flexibility measures. The static liquidity instruments laid down in the CRR therefore can be adjusted dynamically in accordance with the macroeconomic circumstances of credit institutions. For an overview of how this can be done with respect to the NSFR, see Bicu, Bunea, and Wedow (2014), pp. 118–129. For further insights, see also ESRB (2014a), pp. 105–107. It is therefore possible to reconsider these ratios under a macroprudential perspective by calibrating time-varying liquidity and stable funding buffers that banks have to apply beyond their standard prudential requirements. This is evidenced by some European countries, such as Sweden. As of January 2013, the Swedish Financial Supervisory Authority has adopted new regulation (FFFS 2012/6) requiring domestic credit institutions of relevant dimensions to apply a LCR with anti-cyclical properties to be used under stress scenarios. These new rules are based on Basel III framework and require a LCR of at least 100%. For details, see Finansinspektionen’s regulation regarding requirements for a liquidity coverage ratio and reporting of liquid assets and cash flow (FFFS 2012:6), published on 19 November 2012.
- 293.
ESRB (2014a), p. 102.
- 294.
See BCBS (2010b), p. 1.
- 295.
See BCBS (2010a), p. 9. The BCBS published some principles for sound liquidity risk management and supervision in order to provide guidance for risk management and supervision of funding liquidity risk. Moreover, Basel III introduced a LCR aimed at enhancing bank’s resilience in the short term by ensuring sufficient high-quality liquid assets to survive a significant stress scenario of at least 30 days—and a NSFR—designed to reduce funding risk over a longer period by requesting banks to fund their own activities by sufficiently stable sources of funding.
- 296.
Article 412 CRR.
- 297.
See Articles 4(1) and 4(2) of Commission Delegated Regulation (EU) No. 2015/61 of 10.10.2014 to supplement Regulation (EU) No. 575/2013 with regard to liquidity coverage requirement for Credit Institutions.
- 298.
Idem, see Article 4(3).
- 299.
Idem, see Title II, Chapters 1 and 2.
- 300.
In order to implement the NSFR contained in Basel III, the BCBS published in October 2014 definitions, minimum requirements, and operational issues of the funding ratio. See BCBS (2014). This ratio is defined as the amount of available stable funding relative to the amount of required stable funding, and it should be equal to at least 100% on an ongoing basis.
- 301.
Article 413(3) CRR.
- 302.
For an overview of the macroprudential measure introduced by Member States to curb the real estate sector, see Ciani, Cornacchia, and Garofalo (2014). See also Tröger (2015), pp. 581–582, where these instruments are discussed in light of their capacity to influence specific conditions for lenders and borrowers.
- 303.
For a legal definition of these instruments, see Recommendation ESRB/2013/1.
- 304.
This definition is provided in ESRB (2014a), p. 62. In this respect, see also Recommendation ESRB/2013/1.
- 305.
ECB (2014), p. 116.
- 306.
- 307.
See ECB (2014), p. 116.
- 308.
ESRB (2014a), p. 64.
- 309.
See Records of the Financial Policy Committee Meetings held on 17 and 25 June 2014. Available online at http://www.bankofengland.co.uk/publications/Documents/records/fpc/pdf/2014/record1407.pdf. For further details, see also FCA (2014) and PRA (2014).
- 310.
Deutsche Bundesbank (2013), p. 51.
- 311.
See The World Bank (2014), p. 208.
- 312.
See ECB (2014), p. 116.
- 313.
The Liikanen Report acknowledges, at p. 81, that ‘the support to the inclusion of a loan-to-value (LTV) cap and/or loan-to-income (LTI) cap into the macro-prudential toolkit’. In addition, the Report states the harmonization at the EU level ‘of the actual definition and use of such restrictions should be a priority in the further development of an effective set of macro-prudential tools’.
- 314.
In 2011 and in 2013, the ESRB has recommended to introduce the LTV, LTI, and DTI caps in the national macroprudential toolbox. In this respect, see the Recommendation of the European Systemic Risk Board of 21 September 2011 on lending in foreign currencies (ESRB/2011/1) and the Recommendation of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macroprudential policy (ESRB/2013/1).
- 315.
ESRB (2014a), p. 116.
- 316.
Idem, p. 116.
- 317.
In particular, an LTD cap has been established in Portugal in the context of the Portuguese Financial Assistance Programme negotiated with the European Commissions, the European Central Bank, and the International Monetary Fund in 2011. In particular, the eight largest banking groups had to gradually reduce their loan-to-deposit ratios to about 120% by the end of 2014. A similar measure has been adopted also in Ireland as a component of the Irish Financial Assistance Programme. See Banco De Portugal (2011) Explanatory note by Banco de Portugal: loan-to-deposit ratio in the context of the Portuguese Financial Assistance Programme, 29 September 2011. By contrast, a slightly different version of LTFS ratio—a loan-to-local stable funding ratios (LLSFRs)—has been introduced in Austria for the subsidiaries of the three largest banks as a monitoring tool and early warning indicator for non-sustainable lending growth in boom periods. This ratio aims at strengthening ‘the stability of the local funding base of banking subsidiaries and to improve the quality and sustainability of future credit growth’. See Österreichische Finanzmarktaufsicht & Österreichische Nationalbank (2012), pp. 1, 4–5.
- 318.
See de Larosière Report (2009), pp. 39–40.
- 319.
- 320.
- 321.
For details, see Constâncio (2015), pp. 250–259.
- 322.
Constâncio (2013), p. 4.
- 323.
For an early evaluation of the costs related to this supervisory fragmentation in Europe, see Schüler and Heinemann (2005); see also Ferrarini and Chiodini (2009), p. 2, where the authors argue that pre-crisis banking regulation did not fully recognize and support the role of cross-border firms in financial market integration.
- 324.
As pointed out by Baker (2013), p. 43, immediately after the height of the crisis, there was a radical and immediate intellectual shift towards a macroprudential approach to banking supervision. Policymakers laid down new constituents concepts, such as procyclicality, herding, and systemic externalities, that should now inform and guide the regulatory agenda and the legislative reforms.
- 325.
In particular, the de Larosière Report recommended the ECB to be entrusted with macroprudential supervision responsibilities, without assuming, however, microprudential supervisory tasks. This is because such an assignment could have resulted in political pressure and interference, thereby jeopardizing the independence of the ECB. On the issue, see also Hennessy (2014), p. 156.
- 326.
de Larosière Report (2009), p. 48.
- 327.
As part of the so-called Lamfalussy process, the Commission established the CERS in 2001, the CEIOPS in 2003, and the CEBS in 2004, as independent level 3 committees with the purpose of promoting debate and advising the Commission in the field of banking, insurance, and securities regulation and supervision. For details, see Final Report of the Committee of Wise Men on the Regulation of European Securities Markets (Lamfalussy report), Brussels, 15 February 2001. The Lamfalussy process was an agreement that re-established the financial rule-making procedures and the coordination mechanisms for implementation and enforcement of European financial legislation. The broad framework legislations were introduced through normal co-decision procedures, while technical standards and detailed rules were created through committees of experts, national regulators, and European Commission officials. This process therefore led to the creation of the ESAs. See Posner (2007), pp. 141–142; De Meester (2008), pp. 129–131. For a critical discussion on the Lamfalussy process, see also Alford (2006), pp. 389–435; Schaub (2005), pp. 110–120.
- 328.
de Larosière Report (2009), p. 48.
- 329.
The BSC was established in Frankfurt immediately after the creation of the ECB. It assisted the ECB in drafting banking legislation and supported the ESCB in the field of prudential supervision of credit institutions and financial stability.
- 330.
de Larosière Report (2009), p. 44.
- 331.
Idem, p. 45.
- 332.
these: de Larosière Report (2009), p. 45.
- 333.
de Larosière Report (2009), p. 44.
- 334.
Idem, p. 43.
- 335.
- 336.
For details, see Napoletano (2014), p. 88.
- 337.
Idem, p. 88. According to de Larosière Report (2009), p. 49, ‘the level 3 committees should prepare the modalities with the ESRC for a legally binding mechanism, including for the transfer of information, whereby the identification of risks by the ESRC translates into expeditious regulatory, supervisory or monetary policy examination at EU level’. In relation to macroprudential issues, ‘the Authorities would have binding cooperation and information sharing procedures with the ESRC to allow the latter to perform its macro-prudential supervision task. The Authorities should create and lead groups of national supervisors to deal with specific events affecting several Member States (p. 54)’. For an analysis of the concepts and uses of soft law for disciplining the European financial markets, with further literature, see Möllers (2010), pp. 386–392; Arner and Taylor (2009), pp. 505–509. For a definition of soft law and its problematic relationship with hard law, see Shaffer and Pollack (2010), pp. 706–799.
- 338.
de Larosière Report (2009), p. 49.
- 339.
Idem, p. 50.
- 340.
Idem, p. 52. For a discussion of the ESFS as designed by the de Larosière Report, see Lannoo (2009).
- 341.
de Larosière Report (2009), p. 54. As pointed out by Ferrarini and Chiodini (2009), p. 4, cooperation and access to information are fundamental to ensure effective consolidated supervision. The information sharing between home and host authorities failed many times, and prudential supervision of institutions on a consolidated basis has been rather difficult.
- 342.
de Larosière Report (2009), p. 58.
- 343.
The recommendations included in the de Larosière Report were subject to consultation with the ECB and were considered by the European Parliament and the Council of the European Union before adoption. Despite the general support, some of the relevant proposals were controversial and intensive negotiations followed. Finally, the Economic and Financial Affairs Council (ECOFIN) adopted the reform plan in November 2010. With respect to the ECB’s position on the recommendations, see Opinion of the European Central Bank of 11 November 2009 on a proposal for a Regulation of the European Parliament and of the Council on Community macroprudential oversight of the financial system and establishing a European Systemic Risk Board and a proposal for a Council decision entrusting the European Central Bank with specific tasks concerning the functioning of the European Systemic Risk Board (CON/2009/88) (OJ C 270, 11.11.2009, p. 1); opinion of the European Central Bank on three proposals for regulations of the European Parliament and of the Council establishing a European Banking Authority, a European Insurance and Occupational Pensions Authority, and a European Securities and Markets Authority (CON/2010/5) (OJ C 13, 20.1.2010, p. 1). For details, see also Głuch, Škovranová, and Stenströmpp (2013), pp. 3–4, Ferran and Alexander (2011), pp. 19–20. For a discussion on the implementation of the proposals set out in the de Larosière Report with a particular focus on the need to amend the EU primary law, see Siekmann (2009).
- 344.
These regulations are the following: Regulation (EU) No. 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (ESRB Regulation); Regulation (EU) No. 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No. 716/2009/EC and repealing Commission Decision 2009/78/EC; Regulation (EU) No. 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No. 716/2009/EC and repealing Commission Decision 2009/79/EC; Regulation (EU) No. 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No. 716/2009/EC and repealing Commission Decision 2009/77/EC; and Council Regulation (EU) No. 1096/2010 of 17 November 2010 conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board. For the purpose of this book and given the equal content of the first articles, we define the last three regulations as ‘ESAs Regulations’. Further, there is also the Directive 2010/78/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 98/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC, and 2009/65/EC in respect of the powers of the European Supervisory Authority (European Banking Authority), the European Supervisory Authority (European Insurance and Occupational Pensions Authority), and the European Supervisory Authority (European Securities and Markets Authority).
- 345.
According to Recital (9) of Regulation (EU) No. 1093/2010 ‘the ESFS should be an integrated network of national and Union supervisory authorities, leaving day-to-day supervision to the national level’. According to Van Cleynenbreugel (2015), p. 60, this network permits to set up a cooperative structure among different levels of supervision. Therefore, this network is instrumental in including supranational and national authorities in a singularly integrated market system of supervision.
- 346.
For a general overview of the legal framework of the EU financial supervisory architecture and of the role and competences of ESAs and ESRB, see Papadopoulos (2014).
- 347.
See Recital (10) and Article 3(1) of Regulation (EU) No. 1092/2010.
- 348.
- 349.
See Recital (31) of Regulation (EU) No. 1092/2010.
- 350.
Inter alia, doubts have been expressed by Verhelst (2011), pp. 32–33.
- 351.
Verhelst (2011), p. 32.
- 352.
See Judgment of the Court (Grand Chamber) of 2 May 2006. United Kingdom of Great Britain and Northern Ireland v European Parliament and Council of the European Union. Regulation (EC) No. 460/2004—European Network and Information Security Agency—Choice of legal basis (Case C-217/04).
- 353.
In the words of the ECJ ‘acts adopted on that legal basis can contain provisions which do not, in themselves constitute harmonisation measures, but which facilitate the approximation of national laws. In particular, nothing in the wording of that article prevents the legislature from creating a Community body entrusted with the task of providing expertise in an area which is already subject to harmonization measures’ (See paragraph 29 of Case C-217/04).
- 354.
- 355.
See Article 3(2) of Regulation (EU) No. 1092/2010.
- 356.
Of this opinion: Napoletano (2014), p. 126. However, it must be noted that the choice to provide the ESRB with soft-law powers only was mainly due to political reasons where the ESRB has a coordination function. On the issue, in particular, see Ferrarini and Chiodini (2012), Part II, paragraph 8.04.
- 357.
See Napoletano (2014), p. 126, arguing that ‘it is up to the ESRB, through its warnings and recommendations, to convey the necessary macroprudential messages to the public entities that have the hard power to act’. To do so it is necessary for the ESRB to build up a strong credibility that may allow the Board itself to act as a ‘moral authority’. On this issue, see Trichet (2011). For a critical perspective on the ESRB’s moral authority, see instead Manger-Nestler (2013), p. 59, where the author questions the concrete achievement of such authoritative power due to the vulnerabilities of its structure.
- 358.
Ferran and Kern (2011), p. 3.
- 359.
Idem, p. 7.
- 360.
Idem, p. 7. Similar reasons regarding the predominance of soft law over hard law in International Finance are provided by Brummer (2012), pp. 101–105.
- 361.
For a review of the literature on this argument, in particular, see Guibourg, Jonsson, Lagerwall, and Nilsson (2015), pp. 34–39.
- 362.
See European Commission (2014), p. 7.
- 363.
Pursuant to Article 288 of TFUE, recommendations and opinions issued by EU institutions have no binding force. For an empirical study of the soft-law instruments adopted in the EU, along with its decision-making and implementation, see Falkner, Treib, Hartlapp, and Leiber (2005). For more details on the ESRB’s warnings and recommendations, see Lutter, Bayer, and Schmidt (2011), pp. 329–331. In this respect, Napoletano (2014), p. 128, argues that warnings and recommendations serve only ‘to call addressees’ attention to a situation and so prompt their evaluation of whether to exercise their own competences’. This would imply that these measures are simply a call for action and are issued to signal to Member States or other competent authorities the build-up or the materialization of systemic risks. Conversely, other authors share different views upon the function of ESRB’s legal acts. For example, Soares da Silva (2011), p. 11, highlights that the ERSB’s legal acts can put real ‘pressure into Member States or national supervisory authorities by going public, thus creating, with a bigger or a smaller degree of certainty (depending on the case), a possible negative reaction’. Similarly, the possible exertion of public pressure as means of indirect enforcement of ESRB’s recommendations and early warnings is also highlighted by Tröger (2015), p. 584. The efficiency of this indirect enforcement mechanism is further scrutinized by Ferran and Alexander (2011), p. 31, where the authors suggest that consequences of not-compliance can be substantial.
- 364.
See Ferran and Kern (2011), p. 30.
- 365.
For a discussion of the act-or-explain mechanism introduced in the ESRB’s legal acts, see Hennessy (2014), p. 157, where the author argues that this mechanism can be superior when uncertainty over the right instruments to detect and deflate bubbles is material.
- 366.
See Article 17(1) of Regulation (EU) No. 1092/2010. For a better understanding of the functioning of the act-or-explain mechanism and how the follow-up compliance assessment is made, see ESRB, Handbook on the follow-up to ESRB recommendations, available online at https://www.esrb.europa.eu/pub/pdf/other/130708_handbook.pdf?4b88b3f49384aa9ff3564fc86f5767fa.
- 367.
For a critical overview of soft-law enforcement mechanisms in financial markets and the related reputational costs for inaction, see Brummer (2011), pp. 284–290. On the effectiveness of the comply-or-explain mechanism to foster better governance of corporate entities, see Abma and Olaerts (2012), pp. 286–299.
- 368.
de Larosière Report (2009), p. 44.
- 369.
As indicated in Recital (15) of Regulation (EU) No. 1092/2010, ‘the ESRB should be established as a new independent body, covering all financial sectors as well as guarantee schemes. The ESRB should be responsible for conducting macro-prudential oversight at the level of the Union and should have no legal personality.’
- 370.
Actually, this is how the ESRB describes itself. See ESRB (2012), p. 43. However, this self-description is questionable given its absence of legal personality and hard-law powers.
- 371.
See Moloney (2014), p. 1009.
- 372.
The institutional choice of creating the ESRB as an independent body out of the ECB has been due mainly by the different membership in the EU with respect to the membership of the Monetary Union. As an EU body, the ESRB’s action covers all the EU Member States, while the monetary policy of the ECB regards only members of the Euro area. If the ESRB would be a unit of the ECB, the ESRB could have adopted a decision contrasting with ECB monetary policy. This fact could have endangered the credibility of the ECB decisions. However, this is exactly our point. The risk of a decision by ESRB contrasting with ECB monetary policy is a risk (and a contradiction) for the financial system that can hamper both the financial stability and the smooth functioning of the monetary policy transmission channel.
- 373.
See Article 127(1) and Article 282 TFEU. See also Article 2 of the Statute of the ESCB. The price stability objective of the ESCB will be thoroughly analyzed in Chap. 3 of this book.
- 374.
The same provision is laid down in Article 3(3) of the Protocol (No. 4) on the Statute of the European System of Central Banks and of the European Central Bank (hereafter: ESCB Statute).
- 375.
Article 127(6) of TFEU.
- 376.
However, the conformity of the ECB’s involvement in the ESRB Secretariat’s tasks—and, thus, the conformity of Article 127(6) TFEU with the establishment of the ESRB Secretariat—is disputable. A too-narrow interpretation of this Article would not allow the ECB to assume responsibility for setting up a Secretariat for the ESRB entrusted with overall macroprudential oversight. For a discussion of this issue in line with the different interpretations of Article 127(6) TFEU, see Siekmann (2010), pp. 66–67; Keune and Looschelders (2015), pp. 260–261. It must be noted that Article 127(6) TFEU is the only potential legal basis in the primary law to entrust the ECB with responsibilities for ensuring the functioning of the ESRB’s Secretariat. The Article does not explicitly differentiate between microprudential and macroprudential supervisory tasks but simply sets a boundary for the ECB’s (specific) tasks in providing administrative support to the operations of the ESRB Secretariat, where the ECB staff assigned to the ESRB Secretariat can be directly involved in the macroprudential supervision of credit institutions and other financial institutions only where the Council unanimously agrees to give such tasks via special legislative procedure. It must be finally noted that insurance institutions should be in any case out of the scope of such general prudential assignments. Following this view, see Di Noia and Furlo (2012), Part II—7.58.
- 377.
See Recital (9) of Council Regulation (EU) No. 1096/2010.
- 378.
See Article 4(4) of Regulation (EU) No. 1092/2010. More in detail, see also Regulation (EU) No. 1096/2010, where the ECB’s obligations in supporting the ESRB are further defined.
- 379.
For details, see Recital (8) and Article 2 of Council Regulation (EU) No. 1096/2010. It must be noted that the ECB and the ESCB are in a unique position to collect statistical data and information, given that Article 5 of the ESCB Statute provides as explicit duty of the ECB and the ESCB the collection of all the necessary statistical information either from the competent national authorities or directly from economic agents. For this reason, the ECB is specifically entrusted to provide the statistical information collected to the ESRB. What seems striking is that the same statistical information would be used for conducting both monetary policy and macroprudential oversight. For a critical assessment of the ESRB’s information collection, and on the role of the ECB in providing data for the performance of the ESRB’s tasks, see Keller (2013), pp. 489–535. For a better understanding of the tasks assigned to the ESRB Secretariat, see Kohtamäki (2012), pp. 127–129; Moloney (2014), pp. 1013–1019.
- 380.
See Recital (6) of Regulation (EU) No. 1092/2010.
- 381.
According to the same Article, ‘Neither the Member States, the Union institutions nor any other public or private body shall seek to influence the members of the ESRB in the performance of the tasks set out in Article 3(2).’
- 382.
This opinion is shared by Napoletano (2014), pp. 104–109. However, a different interpretation can be given to the word ‘impartiality’. While the normative content of the word ‘impartiality’, as used in Article 7 of ESRB Regulation, largely reflects the same legal obligations imposed by the independence principle laid down in Article 130 TFEU, one can argue that, in view of the different term used, the word ‘impartiality’ does not have the same meaning of independence. Under this interpretation, the word impartiality would only refer to the prohibition of any interference by national and private interests without any regard to political interference. Of this opinion, Zilioli (2016), p. 156. However, this stance seems contradicted by the normative content of the Article which is mostly the same as the principle of independence established for the ECB. On the issue, see also the Opinion of the European Central Bank of 26 October 2009 on a proposal for a regulation of the European Parliament and of the Council on Community macroprudential oversight of the financial system and establishing a European Systemic Risk Board and a proposal for a Council decision entrusting the European Central Bank with specific tasks concerning the functioning of the European Systemic Risk Board (CON/2009/88), which specifically recommends the amendment of Article 7 as to introduce the principle of independence for the ESRB members. For a broader discussion on the issue, see also Kohtamäki (2012), pp. 137–138; Kang (2012), p. 197.
- 383.
For an overview of the main deficiencies in the independence of the ESRB, see Kang (2012), p. 197.
- 384.
See Article 4 of Regulation (EU) No. 1092/2010.
- 385.
See Articles 4(3) and (5) of Regulation (EU) No. 1092/2010.
- 386.
See Article 4(2) of Regulation (EU) No. 1092/2010.
- 387.
More in detail, members of the ESRB General Board with voting rights are (a) the President and the Vice-President of the ECB; (b) the Governors of the national central banks; (c) a Member of the Commission; (d) the Chairperson of the EBA; (e) the Chairperson of the ESMA; (f) the Chairperson of the EIOPA; (g) the Chair and the two Vice-Chairs of the Advisory Scientific Committee; and (h) the Chair of the Advisory Technical Committee. Members without voting rights are (a) one high-level representative per Member State of the competent national supervisory authorities and (b) the President of the Economic and Financial Committee.
- 388.
Another argument against the full independence of the ESRB is related to the ECB’s administrative support in establishing the ESRB Secretariat. The ECB could theoretically influence the work of the ESRB though its involvement in the daily management of the Secretariat’s work streams. On the issue, see Kang (2012), p. 197.
- 389.
For more details, see Article 10 of Regulation (EU) No. 1092/2010. The General Board generally acts by a simple majority of members present with voting rights. In the event of a tie, the Chair of the ESRB shall have the casting vote. However, a majority of two-thirds is required to adopt a recommendation or to make a warning or recommendation public. In any way, a quorum of two-thirds of the members with voting rights is required for any vote to be taken by the General Board. But if the quorum is not met, the Chair of the ESRB may convene an extraordinary meeting at which decisions may be taken with a quorum of one-third.
- 390.
See again Article 7 of Regulation (EU) No. 1092/2010.
- 391.
For a critical perspective of such separation, see Beck and Gros (2012), pp. 1–9. The authors suggest that any strict separation is not desirable during a financial crisis when the systemic stability of the financial system represents the biggest threat to a monetary policy that aims at price stability.
- 392.
The de Larosière Report (2009), p. 54, recommends that the supervisory authorities should have, inter alia, a competence of binding cooperation and information sharing procedures with the ESRC to ensure adequate macroprudential supervision.
- 393.
For details, see Articles 1(6) and 22(1) of ESAs Regulations.
- 394.
See Article 22(2) of ESAs Regulations.
- 395.
See Article 23 of ESAs Regulations.
- 396.
See Article 22(3) of ESAs Regulations.
- 397.
See Article 9(3) of ESAs Regulations. Pursuant to Article 22(1) of ESAs Regulations, the ESAs must ‘respond to warnings and recommendations by the ESRB in accordance with Article 17 of Regulation (EU) No 1092/2010’.
- 398.
However, these powers are strictly circumscribed by Union law as the ESAs must act within the scope of the relevant Union assignments stated in the ESAs Regulation.
- 399.
See Article 22(4) of ESAs Regulations.
- 400.
See Article 9(5) of ESAs Regulations. The power to temporarily prohibit or restrict certain financial activities is a proper hard-law measure that ESAs can adopt based on macroprudential considerations.
- 401.
We refer to the procedure laid out in Article 18 of ESAs Regulations in the event of emergency situations. However, as argued by Weismann (2016), the ESA’s power to issue real binding decisions is disputed and never used. Even in emergency situations, the first objective of the ESAs is to facilitate and coordinate actions by national competent authorities, without binding decisions. Only where necessary, and following the determination of an emergency situation by the Council, the ESAs may, as a last resort, adopt individual decisions requiring the necessary action including the cessation of wrong practices. This decision should state clearly the reasons on which it is based, informing the addressees of the legal remedies available. In addition, prior to issuing the decision, sufficient time should be given to the addressees to express their view on the issue. For a thorough analysis of this procedure, see Weismann (2016), pp. 132–142. This decision-making power raises also concern because of the adequacy of the weak legal basis—namely, Article 114 TFEU—upon which the ESAs were established. For insights on this issue, inter alia, see; Moloney (2010), pp. 1317–1383.
- 402.
See Dragomir (2010), p. 293.
- 403.
- 404.
See Recitals (1) and (2) of Recommendation of the European Systemic Risk Board of 22 December 2011 on the macroprudential mandate of national authorities (ESRB/2011/3).
- 405.
See Recommendations A, B, and C of Recommendation of the European Systemic Risk Board of 22 December 2011 on the macroprudential mandate of national authorities (ESRB/2011/3). The national macroprudential authority must ensure transparency in its decision-making process and must be accountable to the national parliament. Further, it shall be operationally independent from the political bodies and from the financial industry. For details, see also Recommendation D.
- 406.
See Recommendation C of Recommendation of the European Systemic Risk Board of 22 December 2011 on the macroprudential mandate of national authorities (ESRB/2011/3). In the pursuing of such tasks, as indicated in the recommendation, national central banks have to play a leading role, but macroprudential policy shall not undermine their independence.
- 407.
Idem.
- 408.
Id.
- 409.
See Article 131 CRD IV.
- 410.
See Article 133 CRD IV.
- 411.
See Article 104 CRD IV.
- 412.
See Article 458 CRR.
- 413.
This is clearly acknowledged in ESRB (2013), pp. 2–3, where two rationales for such institutional architecture are provided.
- 414.
For a critical discussion on the new role of the ECB as banking supervisor after the establishment of the SSM, see in particular Tröger (2014), pp. 449–497. For an analysis of the competences shared among the ECB and national competent authorities, see Gortsos (2015), pp. 401–420. For a broader perspective on the European banking supervisory framework, see also Verhelst (2013); Boccuzzi (2016), pp. 23–47; Angeloni (2015).
- 415.
This opinion is shared, among others, by Sapir (2014), pp. 164–165, where the author explains that the model chosen by regulation for the divisions of macroprudential responsibilities between SSM and national competent authorities is not centralized and the main responsibility for macroprudential measures still lies with national authorities. The same opinion is supported by Alexander (2014), p. 428, where he argues that the ECB cannot be an effective macroprudential supervisor given the lack of powers mostly left to Member States. A different opinion is instead supported by Lastra (2015), pp. 328–329, as the author states that conferral of microprudential and macroprudential powers to the ECB through the Single Supervisory Mechanism has substantially altered the supervisory architecture in Europe, with the risk that the ESRB may become irrelevant.
- 416.
See Recital 31 and Article 3(1) of Regulation (EU) No. 1024/2013.
- 417.
See Article 5(1) of Regulation (EU) No. 1024/2013.
- 418.
It must be highlighted that such ECB’s top-up powers could generate clashes with national competent authorities as they may not share the same view upon the systemic risk arising in the market for certain supervised entities.
- 419.
See Article 5(2) of Regulation (EU) No. 1024/2013. However, the national authority may propose to the ECB to act in lieu of the ECB ‘in order to address the specific situation of the financial system and the economy in its Member State’. See also Article 5(3) of Regulation (EU) No. 1024/2013. For a short analysis of the Article, inter alia, see Alexander (2014), p. 426.
- 420.
Article 5(4) of Regulation (EU) No. 1024/2013.
- 421.
Napoletano (2014), p. 188.
- 422.
- 423.
Some authors have advocated different interpretations of the relevant provisions. For example, Napoletano (2014), p. 188, suggests the strict interpretation ‘would prevent the ECB from intervening in cases of major national inaction. […] Accordingly, the regulation must be interpreted to permit ECB intervention in cases of total inaction at national level’. This interpretation does not seem consistent with the competences of the ESRB which shall recommend or warn national authorities to act in case of unjustified inaction. Under this interpretation, the ECB would deprive the ESRB of any role by taking up all the macroprudential tasks currently assigned to different EU and national authorities. This concern is further discussed by Ferran and Babis (2013), pp. 282–283, with particular emphasis on the dominant role the ECB can assume in the decision-making process of the ESRB. On the issue, see also Tröger (2014), p. 468. As set out by Véron (2012), p. 6, the capacity for initiative attributed to national authorities in this matter would be more consistent with the principles suggested by the ESRB in the context of the legislative discussion on capital requirements, and with the deep expertise of national authorities in monitoring local markets.
- 424.
See infra at note 1225 ss. For a proper shift of the macroprudential tasks at the EU level, there should be an operationalization of some of the comments expressed in ESRB (2013). For example, the choice of a centralized or decentralized model for macroprudential policy may directly affect the competences and powers as well as the overall regulatory framework of the macroprudential authorities involved. For a discussion of the centralized and decentralized models for banking supervision, see Sapir (2014), pp. 163–165.
- 425.
IMF (2013b), p. 38.
- 426.
For details, see G20, Declaration summit on financial markets and the world economy, 15 November 2009, where the G20 leaders ask the IMF to better integrate regulatory and supervisory responses into the macroprudential policy framework and conduct early warning exercises. In addition, it must be recalled that the FSB Charter recognizes, as part of the FSB’s mandate, to: ‘(a) assess vulnerabilities affecting the global financial system and identify and review on a timely and ongoing basis within a macroprudential perspective, the regulatory, supervisory and related actions needed to address them, and their outcomes; (b) promote coordination and information exchange among authorities responsible for financial stability; […] (h) collaborate with the International Monetary Fund (IMF) to conduct Early Warning Exercises’. Further, the FSB ‘should, as needed to address regulatory gaps that pose risk to financial stability, develop or coordinate development of standards and principles, in collaboration with the SSBs and others, as warranted, in areas which do not fall within the functional domain of another international standard setting body, or on issues that have cross-sectoral implications (Article 2)’.
- 427.
See Article 9(4) of Regulation (EU) No. 1092/2010.
- 428.
See Recital (7) and Article 3(2) of Regulation (EU) No. 1092/2010.
- 429.
Again, see G20, Declaration summit on financial markets and the world economy, 15 November 2009. The legal basis for the IMF early warning exercises is laid down in Article IV of the IMF Articles of Agreement, where the IMF is entrusted with two types of surveillance: bilateral surveillance and multilateral surveillance. The former is conducted vis-a-vis IMF Member States and refers to the monitoring of economic and financial policies of each member. The latter is related to the oversight of the international monetary system in order to ensure its effectiveness. IMF early warning exercises fall within the scope of the IMF surveillance responsibility. For further details, see Rendak (2014), pp. 206–215.
- 430.
The early warning system of the IMF aimed at monitoring low-probability but high-impact risks to the global economy and identifies policies to mitigate them, drawing on a range of quantitative tools and broad-based consultations. For insights, see IMF (2010). See also Ghosh, Ostry, and Tamirisa (2009); Robinson (2014). For a critical perspective on the assignment of such new IMF’s responsibility, see Aiyar (2010), pp. 491–593.
- 431.
See Recital (8) of Regulation (EU) No. 1092/2010.
- 432.
See FSB, IMF, and BCBS (2010).
- 433.
See FSB, IMF, and BIS (2014).
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Amorello, L. (2018). Law and Economics of Macroprudential Banking Supervision. In: Macroprudential Banking Supervision & Monetary Policy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-94156-1_2
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