Institutional developments worldwide and in the EU with regard to financial stability

1. Institutional developments worldwide and in the EU

with regard to financial stability
Peter Spicka, Senior Adviser for Banking Supervision and Financial Stability
The views expressed in this presentation are those of the author and do not necessarily reflect the official views of the Deutsche Bundesbank

2. Financial stability framework Program overview

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3. Overview

Strengthened macro-prudential perspective of global committees and standard setters
Establishment of the European Systemic Risk Board
The banking union in Europe
-
Single Supervisory Mechanism
Single Resolution Mechanism
The European Central Bank as a macro-prudential authority
Résumé
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4. Global committees and standard setters Strengthened macro-prudential perspective

Financial
Stability Board
(FSB)
International
Monetary Fund
(IMF)
European
Union
Germany
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European Systemic Risk
Board (ESRB)
Bank for
International
Settlements (BIS)
Council of EU economic and
finance ministers (Ecofin)
German Financial
Stability
Committee

5. Global committees and standard setters Strengthened macro-prudential perspective

G 20
- International forum for cooperation on global economic and financial issues; established 1999
- Policy coordination, promoting financial regulations, modernizing international financial infrastructure
FSB
- Financial Stability Board; established 2009 as successor of FSF
- Coordinate work of national financial authorities and standard setting bodies, develop and promote
implementation of effective regulatory and supervisory policies in interest of financial stability
Basel Committee
- Forum for regular cooperation on banking supervisory issues, e.g. Basel II and III
- Global regulation framework for more resilient banks and banking systems
- International framework for measurement, standards and surveillance of liquidity risk
EU
- Transposition into EU law via EU Directives
and Regulations
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Germany
- Implementation into national law
- Modification of regulations

6. Global committees and standard setters Strengthened macro-prudential perspective

G-20 Declarations (Pittsburgh Summit, September 2009)
❙Addressing cross-border resolution and systemically important financial institutions (SIFIs)
❙FSB to develop recommendations by October 2010
FSB SIFI Recommendations (Seoul Summit, November 2010)
Higher loss absorbency, in
particular for G-SIFIs
Resolution regime
More intensive supervision
BCBS / FSB SIFI reform package (Cannes Summit, November 2011)
BCBS
G-SIB assessment methodology
and additional loss absorbency
FSB
Key Attributes of Effective
Resolution Regimes
FSB
intensity + effictiveness of SIFI
supervision - progress report
BCBS
to assess the macroeconomic impact of additional capital requirements for SIFIs
EU
Germany
Capital Requirements Directive IV
Bank Recovery and Resolution Directive (BRRD)
Single Resolution Mechanism (SRM)
German Banking Act
Act on Recovery and Resolution of Credit Institutions
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7. Overview

Strengthened macro-prudential perspective of global committees and standard setters
Establishment of the European Systemic Risk Board
The banking union in Europe
-
Single Supervisory Mechanism
Single Resolution Mechanism
The European Central Bank as a macro-prudential authority
Résumé
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8. Establishment of the European Systemic Risk Board (ESRB) Lessons from the financial crisis

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9. Establishment of the European Systemic Risk Board Organisation

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10. European Systemic Risk Board Tasks

Responsible for macro-prudential oversight of the financial system within the EU
in order to contribute to the prevention or mitigation of systemic risks to financial
stability in the EU that arise from developments within the financial system and
taking into account macro-economic developments
Establishes link between micro-prudential supervision and macro economy
Brings the systemic component into financial supervision
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11. European Systemic Risk Board Tasks

(1) Input gathering
and analysis
(2) Assessment
(3) Policy response
Collection and
analysis of
information
Identification,
assessment and
prioritisation of
risks
Warnings and
recommendations
ESRB member organisations
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12. Overview

Strengthened macro-prudential perspective of global committees and standard setters
Establishment of the European Systemic Risk Board
The banking union in Europe
-
Single Supervisory Mechanism
Single Resolution Mechanism
The European Central Bank as a macro-prudential authority
Résumé
26/04/2016
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13. The banking union in Europe Concept

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14. Conceptual background of the banking union Lessons from the financial crisis

Lessons from the financial crisis kick-started work on the European banking
union
Supervisory structures previously in place were no longer adequate to deal with
highly interconnected European financial markets
Banking supervision primarily carried out at national levels makes it difficult to
identify all risks of cross-border banking groups
One of the overarching goals is to loosen the close ties between bank and
sovereign risks
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15. Conceptual background of the banking union Contagion channel between sovereigns and banks

Source: ESRB (2015)
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16. Conceptual background of the banking union Milestones of the European banking union

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17. New institutional framework for micro and macro-prudential supervision in EU Institutional perspective

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18. New institutional framework for micro and macro-prudential supervision in EU Policy perspective

Source: Deutsche Bundesbank (2014)
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19. New institutional framework for micro and macro-prudential supervision in EU Country perspective

Source: ECB (2016)
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20. Single Supervisory Mechanism in Europe Legal and operational framework

Article 127.6 TFEU
SSM Regulation
(Council Regulation (EU)
1024/2013)
Governance
(Rules of Procedure:
ECB, Supervisory Board,
Mediation Panel, Administrative
Board of Review)
ECB Framework Regulation
(ECB/NCAs cooperation)
Prudential
regulation
CRR
CRD IV
National law
implementing EU law
EBA technical standards
Supervisory Manual
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21. Single supervisory mechanism in Europe Division of tasks between national and European level

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22. Methodology for classifying supervised entities What makes a bank significant?

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23. Distribution of tasks within the SSM Overview

Source: ECB (2014)
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24. Single supervisory mechanism (SSM) Functioning of the Joint Supervisory Teams

Source: ECB (2015)
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25. Single supervisory mechanism (SSM) Significant supervised entities in Germany

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26. Single supervisory mechanism (SSM) Framework for supervision of less significant institutions (LSI)

Source: ECB (2015)
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27. Supervision of LSIs Priorisation of LSIs

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28. Supervision of LSIs Requirements for reporting to the ECB

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29. Single supervisory mechanism (SSM) Supervisory priorities 2016

Source: ECB (2016)
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30. Overview

Strengthened macro-prudential perspective of global committees and standard setters
Establishment of the European Systemic Risk Board
The banking union in Europe
-
Single Supervisory Mechanism
Single Resolution Mechanism
The European Central Bank as a macro-prudential authority
Résumé
26/04/2016
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31. European Central Bank as a macro-prudential authority Macroprudential policy and oversight in Europe: EU, ECB and ESRB

General responsibility for EU-wide policy measures lies with European Commission
General responsibility for country-specific policy measures lies with national authorities
ECB can tighten macroprudential requirements
- Notification of Member State 10 working days prior to decision
- Member state has 5 working days to object
ESRB: macroprudential surveillance on EU level
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32. European Central Bank as a macro-prudential authority Macroprudential policy in Europe: the role of the ECB

European Central Bank (ECB)
Additional tasks within its new responsibility for banking supervision in Europe
Macroprudential tasks according to Article 5 SSM regulation
- Regional responsibility: euro area and opt-in countries
- Sectoral responsibilities: banks
Intensification of national macroprudential measures
- Direct approach
- Counteracting 'inaction bias'
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33. European Central Bank as a macro-prudential authority Macroprudential oversight in Europe: the role of the ESRB

European Systemic Risk Board (ESRB)
Central EU body for macroprudential oversight and policy
-
Regional competence: 29 EU Member States
Sectoral competence: all financial intermediaries
Objectives and tasks
-
Addressees:
Identification, surveillance and limitation of systemic risk
Instrument: warnings and recommendations
--> comply or explain, indirect approach
EU institutions or EU member states
Comply or explain: Addressee of a recommendation is obliged to inform within a limited
time period how he wants to implement the recommendation or why he
does not intend to implement it
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34. Overview

Strengthened macro-prudential perspective of global committees and standard setters
Establishment of the European Systemic Risk Board
The banking union in Europe
-
Single Supervisory Mechanism
Single Resolution Mechanism
The European Central Bank as a macro-prudential authority
Résumé
26/04/2016
Slide 34

35. Résumé Institutional set-up financial stability – European perspective

Source: German Council of Economic Experts (2015)
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36. References

Council Regulation (EU) No 1024/2013 of 15 October 2013, L287/63
Deutsche Bundesbank, Monthly Report, various issues
European Banking Authority, Annual Report, various issues
European Central Bank, Annual Report on Supervisory Activities, March 2015
European Central Bank, Banking Supervision, SSM Priorities 2016, 2016
European Central Bank, Guide to Banking Supervision, November 2014
European Systemic Risk Board, ESRB report on the regulatory treatment of sovereign exposures,
March 2015
German Council of Economic Experts, Annual Report, various issues
Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014, L 141/1
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37. Thank you very much for your attention!

Contact: [email protected]