EN    EN  
 EUROPEAN  
COMMISSION 
Brussels, 8.8.2014  
COM(2014) 508 final 
  
REPORT FROM THE COMMISSION TO  THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 
on the mission and organisation of the European Systemic Risk Board (ESRB) 
{SWD(2014) 260 final}  
 
2 
 REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT 
AND THE COUNCIL 
on the mission and organisation of the European Systemic Risk Board (ESRB) 
1. I NTRODUCTION  
The global financial crisis in 2008 revealed gaps in the regulatory and supervisory 
framework of the European Union. Supervis ion remained fragmented along national 
lines, was insufficiently focused on interdep endence within the fi nancial system, did 
not involve sufficient exchange of information and coordination between 
supervisors and placed little emphasis on macro-prudential oversight. Building on 
the recommendations of the de Larosière Report of 20091, a new authority in charge 
of EU-wide macro-prudentia l oversight was establishe d in 2010 – the European 
Systemic Risk Board (ESRB), as part of  the new European System of Financial 
Supervision (ESFS) comprising also thr ee European sectoral micro-prudential 
authorities, the European Superv isory Authorities (the ESAs)2. 
In line with Article 20 of the Regulation establishing the ESRB3, this report reviews 
the mission and organisation of the ESRB,  including issues relating to the 
appointment of the Chair of the ESRB, in light  of experience in the past three years. 
Pursuant to Article 5(1) of the Regulati on, the ECB President is appointed as ESRB 
Chair for a first term of five years follo wing the entry into fo rce of the Regulation 
i.e. 16 December 2010. For the subsequent te rms, the Chair of the ESRB shall be 
designated in accordance with modalities to be determined. This report also 
responds to the reporting requirement in Article 8 of the second Regulation on the 
ESRB4, which defines the modalities of the ECB’s support to the ESRB.  
For consistency, and because the four author ities are part of the same supervisory 
system, the Commission has decided to conduc t the review of th e ESRB and of the 
ESAs in parallel so as to adopt and publis h two review reports – one covering the 
ESRB and one covering the ESAs – at the sa me time. The purpose of this report is 
to assess the mission and organisation of the ESRB since its inception, in 
accordance with the review clauses of two ESRB Regulations. Apart from first-hand experience through its partic ipation as a member of the ESRB General Board and 
other ESRB governing or advisory bodies, the Commission’s review of the ESRB 
was informed by various sources. First, the Commission analysed evidence from the Public Hearing on the ESFS review on 24 May 2013. Second, the Commission assessed the feedback it received from th e consultation process, which was held 
between 26 April and 31 July 2013. This process comprised a public consultation 
and a targeted consultation, including more detailed and technical  questions directed 
at the ESAs, national authorities, relevant institutions and agencies and key stakeholders. The Commission received 137 responses in total (94 to the public 
consultation and 43 to the targeted consul tation). Third, the Commission considered 
                                                
 
1 The High Level Group on Financial Supervision (chaired by Jacques de Larosière), Report, 
25 February 2009; http://ec.europa.eu/internal_market/fin ances/docs/de_larosiere_report_en.pdf . 
2 For the founding regulations of the ESAs see OJ L 331, 15.12.2010, p. 12.  
3  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 (OJ L 331, 15.12.2010, p. 1) (the ESRB Regulation). 
4  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 (OJ L331, 
15.12.2010, p. 162). 
 
3 the contribution provided by the ESRB 's High-Level Group on the ESRB Review5 
as well as the ESAs Joint Opin ion on the review of the ESRB6. In addition, the 
Commission took into account other studies and reports on the matter presented by 
the IMF7.Finally, the study commissioned by the European Parliament (EP)8 on the 
ESRB review and the EP's resolution w ith recommendations to the Commission on 
the ESFS Review9 and the preceding discussions  were carefully considered. 
Drawing on input from these various external  sources – hereafter referred to simply 
as “stakeholders” – the Commission has pr oceeded with the assessment required in 
the relevant legislation10.  
Assessing the functioning of the ESRB at this  point in time is a complex task for 
two main reasons. First, it is difficult to assess the ESRB’s performance as a 
forward-looking macro-prudential authority as  it was established at the height of the 
financial crisis, while its primary mandate  is to prevent the occurrence of such 
crises. Second, there are two significant reforms of the financial framework in the 
process of being implemented that will have an impact on the role of the ESRB, namely the establishment of a Single Supervisory Mechanism (SSM)
11 in the Euro 
Area – and in non-euro Member States, wh ich have established a close cooperation 
with the ECB – and the provisions relating to macro-prudential instruments in the 
new Capital Requirements Direc tive and Regulation (CRD IV/CRR)12. 
Nevertheless, the following sections of the report focus on ESRB activities to date, highlighting the ESRB's main strengths and achievements and identifying areas for potential improvement.  
                                                
 
5  ESRB, High-Level Group on the ESRB Review, Cont ribution to the Review of the ESRB (foreseen in 
the ESRB Regulation), March 2013;  
http://www.esrb.europa.eu/pub/pdf/other/130708_h ighlevelgroupreport.pdf?e913faa529f509c934cd48
4435ad13a8 . 
6  ESAs Joint Opinion – review of the European Systemic Risk Board (ESRB, 17 December 2013, 
ESAs-2013-035; 
https://eiopa.europa.eu/fileadmin/tx_dam/files/pu blications/opinions/ESAs _opinion_on_the_ESRB_re
view.pdf). 
7  European Union: Publication of Financial Sector Assessment Program Documentation – Technical 
Note on Macroprudential Oversight and the Role of the ESRB; IMF Country Report No. 13/70; March 2013.
 
8 European Parliament, Review of the New European System of Financial Supervision (ESFS) – Part 2: 
The Work of the Europ ean Systemic Risk Board (ESRB) (Authors: Samuel McPhilemy and John 
Roche (Oxford Analytica)), October 2013;  
http://www.europarl.europa.eu/RegData/ etudes/etudes/join/2013/507490/IPOL-
ECON_ET(2013)507490_EN.pdf.  
9  European Parliament resolution of 11 March 2014 with recommendations to the Commission on the 
European System of Financial Supervision (ESFS) Review (2013/2166(INL));  http://www.europarl.europa.eu/sides/getDoc .do?pubRef=-//EP// TEXT+TA+P7-TA-2014-
0202+0+DOC+XML+V0//EN&language=EN#top.  
10  Cf. Article 20 of the ESRB Regulation and Article 8 of Council Regulation (EU) No 1096/2010. The 
ECB opinion is expected. 
11  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European 
Central Bank concerning policies relating to the prud ential supervision of credit institutions (OJ L 287, 
29.10.2013, p. 63) (Regulation establishing the SSM). 
12  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1) and Directive 2013/36/EU of the European Parliament and of the 
Council 26 June 2013 on access to the activity of credit institutions and the prudential supervision of 
credit institutions and investment firms, amending  Directive 2002/87/EC and repealing Directives 
2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).
 
 
4 2. T HE ESRB  FUNCTIONING (MISSION AND ORGANISATION ) SINCE INCEPTION  
2.1. The ESRB mission 
The ESRB mandate is defined in broad terms in the ESRB Regulation. It is 
responsible for the macro-prudential oversi ght of the financial system within the 
Union in order to contribute to the preven tion or mitigation of systemic risks to 
financial stability arising from developm ents within the financial system. It 
contributes to the smooth functioning of the internal market and thereby ensures that 
the financial sector plays a role in fo stering sustainable economic growth. The 
ESRB Regulation defines systemic risk as ‘a risk of disrupti on in the financial 
system with the potential to have serious  negative consequences for the internal 
market and the real economy. All types of  financial intermediaries, markets and 
infrastructure may be potentially sy stemically important to some degree’13.  
The ESRB Regulation stresses th e preventive role of the ESRB  in that it should 
‘contribute to the prevention of systemic risks’ and ‘avoid periods of widespread 
financial distress’. In ad dition, the ESRB should ‘iden tify and priori tise systemic 
risks’. 
In pursuing its macro-prudential mandate, the ESRB performs a number of key 
functions, namely risk monitoring, risk  assessment and ultimately, if appropriate, 
the adoption of warnings and recommendations  for remedial action14. Besides 
policy recommendations, the ESRB has publis hed several documents relating to its 
activity and analytical  work: quarterly risk dashboard s, reports of the Advisory 
Scientific Committee (ASC) and other occasi onal papers and commentaries as well 
as two annual reports. According to th e ESRB Regulation, the ESRB may only issue 
warnings and recommendations which are non-binding but to which an ‘act or explain’ procedure applies.  The use of non-binding instruments gives the ESRB the 
ability to interact freely w ith any public authority invol ved in financial issues and 
ensure greater scope in the formulati on of any recommendations. The ESRB relies 
on its influence and authority (i.e. reputa tional power) in order to ensure that 
appropriate action is taken in response to its warnings and policy recommendations. 
Warnings and recommendations can be made public following a decision by the 
General Board of the ESRB on a case-by- case basis. To date, the ESRB has 
published seven policy recommendations
15.  
With the entry into force of the macro-prudential framework of CRD IV/CRR on 
1 January 2014, the ESRB is developing an analytical and organisational framework in order to be able to take up the new tasks conferred on it by the 
legislation, i.e. delivering opinions and/or recomm endations to Member States with 
regards to the use of the new macro-prud ential tools (i.e. countercyclical capital 
buffers, systemic risk buffer), including th e possibility to impos e stricter prudential 
requirements under Article 458 of the CRR (‘f lexibility clause’). With a view to 
                                                
 
13  Cf. Article 2(c) of the ESRB Regulation. 
14  Cf. Article 3 of the ESRB Regulation. 
15  Recommendation on lending in fore ign currencies (OJ C 342, 22.11.2011, p. 1); Recommendation on 
US dollar funding (OJ C 72, 10.03.2012, p. 1), Recommendation on the macro-prudential mandate of 
national authorities (OJ C 41, 14.2.2012, p. 2); Recommendation on funding of credit institutions (OJ C119, 25.4.2013, p. 1), Recommendation on money market funds (OJ C 146, 25.5.2013, p. 1); 
Recommendation on intermediate objectives and in struments of macro-prudential policy (OJ C 170, 
15.6.2013, p. 1); Recommendation on guidance for setting countercyclical buffer rates (ESRB/2014/1; 30.06.2014). 
 
5 operationalizing the macro-prudential fram ework, the ESRB has published in March 
2014 a Flagship Report16 providing a first overview of  the new macro-prudential 
framework in the EU as  well as a detailed Handbook17 which aims at giving 
guidance to national authorit ies for the use of the new instruments. The ECB will 
also play a key role in this area in the future. According to Article 5 of the Regulation establishing the SSM, the ECB will have specific  macro-prudential 
competences in the Euro Area – and in  non-euro Member States which have 
established a close cooperation with the E CB – and will notably be able to impose 
stricter macro-prudential buffers than  those adopted at national level.  
2.2. The ESRB organisation 
The ESRB has a complex organisational stru cture, reflecting a desire to gather 
the necessary expertise both at national level - involving national central banks 
and supervisors-, and at European leve l - involving the ECB, Commission, the 
Economic and Financial Comm ittee (EFC), and the ESAs.  The institutional 
framework of the ESRB comprises a Ge neral Board, a Steering Committee, an 
Advisory Technical Committee (ATC) a nd an Advisory Scientific Committee 
(ASC). The work of these various fo ra is supported by the ESRB Secretariat
18. The 
ESRB General Board, currently comprising 67  members, is the principal decision-
making body of the ESRB. Each of the currently 38 members of the General Board with a voting right
19 has one vote and the General Bo ard usually decides by simple 
majority. A majority of two-thirds is re quired to adopt a recommendation or to make 
a warning or recommendation public20. Members of the General Board without 
voting rights (currently 29 members) compri se one high-level representative per 
Member State of the competent national supe rvisory authorities and the President of 
the EFC. In general, the voting modalities within the General Board were deemed appropriate by stakeholders. The Steeri ng Committee comprising 14 General Board 
members is responsible for the preparation of the Gene ral Board’s meetings. The 
ATC mirrors the composition of the General Board on a more technical level. The ASC has been established to bring a di fferent and more external, scientific 
perspective to the work of the ESRB. It consists of 15 members representing a wide 
range of skills and expertise. 
The ESRB relies on the ECB for analytic al, financial and ad ministrative support . 
At the time of inception of the ESRB, the choice of the ECB as host institution was guided by a number of considerations. Th e primary objective was to draw on the 
ECB’s existing expertise in the field of fi nancial stability. The proximity of macro-
prudential policy to the moneta ry policy function was also considered to be an asset. 
                                                
 
16  Flagship Report on Macro-prudential Policy in the Banking Sector;  
http://www.esrb.europa.eu/pub/pdf/other/140303_f lagship_report.pdf?31b5f8e9c568a6ca55d8bd08d3
6b1eb8.  
17  ESRB Handbook on Operationalising Macro- prudential Policy in the Banking Sector;  
http://www.esrb.europa.eu/pub/pdf/other/140303_esrb_handbook.pdf?d15dae97dfb3b9136f3d130ba18
5dfe9  
18  Article 2(e) of Council Re gulation (EU) No 1096/2010. 
19  The President and the Vice-President of the ECB; the Governors of the national central banks; a 
Member of the Commission; the Chairperson of the European Supervisory Authority (European 
Banking Authority); the Chairperson of the European Supervisory Authority (European Insurance and Occupational Pensions Authority); the Chairperson of the European Supervisory Authority (European 
Securities and Markets Authority); the Chair and th e two Vice-Chairs of the Advisory Scientific 
Committee; the Chair of the Ad visory Technical Committee. 
20  Article 10 of the ESRB Regulation. 
 
6 The fact that the ESRB would be able to benefit from the analytical, financial and 
administrative support of the ECB was deemed  instrumental to its future success. 
More importantly, the ESRB could benef it from the visibility, independence and 
strong reputation of the ECB. In the same ve in, it was decided that the first Chair of 
the ESRB should be the President of the ECB for a term of five years. As the ESRB 
has no binding powers, but relies on moral su asion and peer pressure, it was deemed 
appropriate to choose a well-known and cred ible figure as Chair of the ESRB. The 
review clause in the ESRB Regulation specifically refers to the arrangements for the designation or election of the Chair of the ESRB
21. 
The ESRB is accountable to Parliament and Council. It is required to provide 
information about its actions to the European Parliament and the Council22. At least 
annually, and more frequently in the even t of widespread financial distress, the 
Chair of the ESRB is invited to a hearing in the European Parliament. Hearings of 
the ESRB Chair are generally held back -to-back with hear ings of the ECB 
President. The Chair of the ESRB also holds  confidential oral di scussions, at least 
twice a year with the Chai r and Vice-Chairs of the Ec onomic and Monetary Affairs 
Committee of the European Parliament.  
The ESRB is part of the ESFS and particul ar attention has been given in the 
founding Regulations to the interac tion between the ESRB and the ESAs. One of 
the major lessons of the financial crisis was that, in order to have a stable financial system, micro-prudential supervisors shoul d interact closely with the new macro-
prudential level. Both pillars of the new s upervisory system are essential to achieve 
valuable synergies between the micro and macro level, to mutually reinforce the impact on financial stability and to bene fit from a fully inte grated supervisory 
framework. Close interaction is ensure d by cross-membership among the four 
authorities. The ESAs Regulations
23 also specify the proce dures to be followed by 
the ESAs to act upon recommendations by the ESRB and how the ESAs should use 
their powers to ensure timely follow-up to  recommendations addressed to one or 
more competent national supervisory au thorities. Cooperation between the ESRB 
and the ESAs is also important in the area of stress testing.  
3. A SSESSMENT OF THE ESRB  WORK : MAJOR STRENGTHS AND AREAS FOR 
IMPROVEMENTS . 
Stakeholders were in many respects satisfied with the work of the ESRB in the first 
years since its inception. N early all underlined the impor tance of macro-prudential 
oversight and the need for coordination in  the use of macro-prudential tools by 
Member States. However, stakeholders gene rally felt that it was too early to form a 
substantiated opinion about the impact of ESRB warnings and recommendations. 
The ESRB has just finalised its impact as sessment framework and more time is 
needed to obtain a better and more in-d epth view on how addressees have reacted.  
While the ESRB is seen as a key com ponent of the ESFS, many stakeholders 
identified areas for improvement. These areas for improvement mainly relate to organisational identity, intern al governance and the available tools (i.e. warnings 
and recommendations).   
                                                
 
21  Cf. Article 20 read in conjunction with  Article 5 of the ESRB Regulation. 
22  Cf. Article 19 of the ESRB Regulation. 
23  Cf. Article 36 of the Regulations establishing the ESAs (see fn. 2). 
 
7 3.1. M AJOR STRENGTHS  
The strengths and successes of the ESRB have been underlined by many 
stakeholders. The ESRB relies on a uniqu e and wide range of  expertise, it has 
succeeded in raising awareness on financial stability matters among policy makers, and it has started to develop useful and promising analytical work, notably on 
interconnectedness.  
As regards the ESRB mandate and powers,  the vast majority of stakeholders 
shared the view that the mandat e of the ESRB was sufficiently broad  and all 
stakeholders were satisfied with the forw ard-looking and preventive nature of the 
ESRB's mandate. All stakeholders were also  satisfied with the non-binding nature of 
ESRB warnings and recommendations, which was seen as fitting well with the 
ESRB's broad mandate and scope. No stake holder called for a cha nge in this area. 
There is a broad agreement that the 'act or explain' mechanism should remain a key 
part of the system of warnings and recommendations, which should be capable of delivery on a timely and flexible basis. 
Throughout the crisis, the ESRB has provided a unique forum for discussion  at 
the highest level between central banke rs, national supervisors and European 
authorities on financial stability issues. Th e ESRB gathers together a wide range of 
expertise across financial sectors and c ountries, which has been acknowledged by 
many stakeholders to be a major strengt h. The role of the ESRB Secretariat was 
generally considered to be positive by st akeholders. It played a key role in 
establishing internal procedures, devel oping working methods and tools (e.g. ESRB 
website, ESRB IT application) and prep aring and organising meetings in an 
effective way. It was also actively involved in the analytical wo rk of the ESRB. The 
resources allocated to the ESRB Secret ariat were, however, considered by some 
stakeholders as insufficient. 
The ESRB has contributed to the introduc tion of a macro-prudential dimension to 
financial policies and regulations. Macro-prudential policy was the major 
innovation of the de Larosière Report. Prior to the establishment of the ESRB, there 
was no authority in the Eur opean Union actively invo lved in macro-prudential 
supervision. While the ESAs essentially built on activities already performed at national level, the ESRB’s field of comp etence was largely unchartered territory. 
Due to its activities, notably but not only through its warnings and 
recommendations, the ESRB has managed to make policy-makers more sensitive to 
systemic risk and financ ial stability concerns.  
The ESRB is playing a key role in th e establishment of a macro-prudential 
framework in the European Union. The ATC is actively involved in establishing a 
consistent framework across Member States . It has prepared two recommendations 
to this effect, which have both been a dopted and published by the General Board: 
one on the necessity to establish nationa l macro-prudential authorities with a 
specific mandate; and one on objectives and instruments of macro-prudential 
policies. The recommendation on macro-prude ntial authorities had a very tangible 
impact. In response, –  and also as a consequence of the entry into force of 
CRD IV/CRR in January 2014, which requires Member States to appoint a ‘designated authority’ in char ge of activating the new macro-prudential buffers – all 
Member States have established or are in the process of establishing national macro-
prudential authorities (although it  should be noted that not al l of these authorities are 
currently represented in the ESRB). The ESRB's new role  of coordinator of Member 
States' macro-prudential policies under CRD IV/CRR is consistent with the 
 
8 objective enshrined in the ESRB Regulation th at it should contribute directly to an 
integrated Union supervisory structure necessary to promote timely and consistent policy responses among the Member States , thus preventing diverging approaches 
and improving the functioning of the internal  market. With a view to the upcoming 
macro-prudential competences of the E CB in the Euro Area and in non-euro 
Member States which have established a close cooperation with the ECB, an 
appropriate interaction between the ECB and the ESRB will need to be ensured. 
The ESRB is developing important analytical work on cross-cutting macro-
prudential issues (e.g. over-ban king, interconnectedness). The recent work on 
contagion channels via Credit Defau lt Swaps (CDS) or interbank funding is 
particularly interesting in that respect . Many stakeholders have stressed the 
importance of this recent work  and suggest that it shoul d be further developed. The 
participation of micro-prudential supervisor s in the work of the ESRB as well as the 
participation of the ESRB in the work of the ESAs is essential to ensure that the assessment of macro-prudential risk is ba sed on complete and accurate information. 
In general, the cooperati on between the ESRB and the ESAs is deemed to have 
worked well, but many stakeholders would welcome more joint work – e.g. the 
establishment of a common risk dashboar d. The increasing role of the ESRB in 
stress testing is also worth noting and ha s been welcomed by many stakeholders.  
The current accountability arrangements were considered by stakeholders as 
appropriate,  as they allow for a proper dialogue  while ensuring full confidentiality 
for sensitive information. 
3.2. A
REAS FOR IMPROVEMENT  
The areas for potential improvement identified by stakeholders relate mainly to 
three aspects: the organisational identity of the ESRB, the internal organisation of the ESRB and its working structures, and th e tools and powers at its disposal, which 
could be expanded to enhance the early warning function. 
3.2.1. Organisational identity  
Entrusting the function of the Chair of the ESRB to the President of the ECB for 
the first five years after the ESRB's inception has  allowed the  ESRB to benefit from 
the ECB's visibility, independence and str ong reputation. Given th at the mandate of 
the first Chair will expire five years after the entry into force of the ESRB 
Regulation i.e. on 16 December 2015, the Regu lation will have to be revised to 
ensure legal clarity. As the ESRB ha s non-binding powers, but relies on moral 
suasion and peer pressure, a well-known a nd credible figure as Chair of the ESRB 
has a lot of merit.  
Many stakeholders stressed the need  to enhance the ESRB's identity.  Many 
stakeholders insisted on the need to e nhance the ESRB autonomy, while allowing it 
to continue to rely on ECB reputation and expertise. This issue was also addressed 
in the EP Resolution. In this context, the possibility of a two-tier managerial 
structure has been suggested by some stak eholders. The ESRB would continue to be 
chaired by the ECB President, but a new f unction of a full-time Managing Director 
would be created. While the ECB Presiden t would continue to  chair the ESRB 
General Board, the highest decision-m aking body of the ESRB, the Managing 
Director would be in charge  of the day-to-day activity of the ESRB and could also 
represent the ESRB in certain key fora e .g. in the EFC. Appointing an "executive 
Chairperson" has also been recommended in the EP Resolution.  
 
9 3.2.2. Internal organisation and working structures  
According to the majority of stakehol ders, the current structure and governance 
arrangements of the ESRB could be improve d to ensure more efficient decision-
making.  
The size of the General Board could be reduced . Nearly all stakeholders have 
identified the large size of  the General Board (67 member s) as a potential problem 
and some have also pointed to the size of  the ATC in similar terms. If gathering 
together a wide range of e xpertise is generally consider ed to be an asset, many 
stakeholders highlighted that the current size of the General Board has drawbacks in 
terms of functioning of meetings and discussions, possibili ty to exchange 
confidential and sensitive information as well as smooth decision-making. The Steering Committee, the size of which is more limited (i.e. 14 members of the General Board), is more suited for the discussion of sensitive issues but it is not empowered to decide and its role is thus limited to the preparat ion of the meetings 
of the General Board. Some stakeholde rs have suggested that increasing the 
frequency of the Steering Committee meeti ngs could contribute to enhancing its 
role. Many stakeholders have argued that there is scope to reduce the size of the 
General Board (e.g. by limiting the repres entation of Member States to one 
representative) or to entrust more powers to the Steering Committee whose 
composition could be also modified, notably  but not only because of the creation of 
the SSM.  
Some stakeholders also suggested that the composition of the General Board 
could be amended with a view to rebalan cing the ESRB focus across sectors and 
strengthen the European perspective. Members could, for example, represent 
several institutions within the same Member State or even several Member States. Another factor that has been  identified as possibly contri buting to a certain "banking 
bias" would be ESRB Secretariat staff drawn from central banks, who would more 
naturally be focusing on banki ng issues (most National Central Banks are in charge 
of banking supervision) than on other fina ncial sectors. Moreover, it must also be 
acknowledged that banks are typically the main sources of systemic risk, so the 
focus is also motivated by the higher ri sk that the banking sector generates.  
It has been suggested that the compos ition of the two advisory committees could 
be reviewed. There was a contrast in the feedba ck received during the consultation 
on the work of the two advisory committees. As regards the ATC, many respondents praised the Committee for delive ring regular input to the ESRB General 
Board agenda. However, others highlighted  that it was too banking oriented and had 
a certain national bias in its approach to sy stemic risk. It has been suggested that the 
number of ATC members could be reduce d, mirroring the solution that could be 
retained for the General Board. As regards the ASC, stakeholders noted its less frequent output than the ATC. However, in terms of substance, its work is deemed 
generally more innovative and ‘out of  the box’ than that of the ATC.  Some 
respondents proposed to merge the two advi sory committees so as to combine the 
working method of the ATC and the ‘out of the box’ approach of the ASC.  
3.2.3. The ESRB toolbox 
The ESRB communication and interaction with other institutions and bodies is 
perceived by many stakeholders as perf ectible and too reliant on the formal 
instruments of warnings and recommendations. 
 
10 Stakeholders have called for increased transparency as a means to enhance the 'act 
or explain' mechanism (e.g. publications of warnings and recommendations, more 
transparency on the follow-up by addressees, etc.).  
Stakeholders  have also suggested that the ‘act or explain’ mechanism could be 
enhanced by a better interaction with  other European bodies, notably the EFC . A 
better and early interaction could strengt hen the impact of the ESRB actions and 
raise awareness among Member States of  the impact of their policy decisions on 
financial stability. Some – and notably the report by the high-level experts from the 
ATC and ASC – have stressed that a fu ll-time Managing Director of the ESRB24 
could contribute to a smoother interaction with potential addressees at an early 
stage, thereby rendering the ESRB's action more effective. 
As regards the ESRB intervention in the field of legislation, some stakeholders 
have suggested that it could be better framed with a view to avoiding involvement 
at a very late stage of the legislative process or even after a legislation has been 
adopted. Foreseeing an early input could avoid inefficiencies caused by a late 
involvement– as occurred in the case of CR D IV/CRR. In this context, it has been 
argued that the involvement of the ESRB coul d be restricted to identifying areas for 
future legislative action. Other stakehol ders proposed that the ESRB could be 
consulted prior to the adoption of a legisl ative proposal in the field of financial 
stability.  
There is a view among st akeholders that the ESRB's external communications 
could be enhanced. The ESRB’s role is to monitor and assess risks to the financial 
system, but it relies on other bodies a nd Member States to implement macro-
prudential policies to mitigate those risks. Its performance is, therefore, contingent 
on how well it manages relations with other stakeholders and the Member States. It 
also relies on information from these bodies  to inform its work. Some stakeholders 
see scope to improve the quality and timeliness of ESRB communications both internally, with other bodies of the ESFS a nd the European System of Central Banks 
(ESCB) but also vis-à-vis foreign and in ternational peers (US Financial Stability 
Oversight Council, Financial Stabili ty Board, Basel Committee on Banking 
Supervision, IMF), market participants and the public at large. The potential role of 
a full-time Managing Director could help in crease the visibility of the ESRB and 
facilitate a more proactive and coherent communication strategy.  
Stakeholders have identified a need to imp rove the processes for dealing with the 
exchange of data between the ESRB and ESAs within the ESFS . There is a 
detailed and lengthy approva l process through which the ESRB receives data, which 
can affect the timeliness and impact of its output. Numerous  approval steps are 
duplications. It has been argued that th ese processes should be streamlined to 
improve efficiency and effectiveness. Delays  in accessing data means that the ESRB 
may not be able to issue warnings and recommendations before risks crystallise – 
this could detrimentally affect its early-warning capability. 
The ESRB's toolbox could be expande d to include more ‘soft powers’ . The ESRB 
has issued a series of formal recomme ndations in the past three years. The 
timeliness of ESRB recommendations was criticised by some stakeholders, with 
some recommendations coming late and, in one case, after the problem had already 
been addressed. The process for adoption of ESRB recommendations by the General Board and the fact that ESRB recommendati ons are drafted in a very formal manner 
                                                
 
24  See Section 3.2.1 above. 
 
11 have been identified as likely sources of  delay. Addressees sometimes perceived 
them as too formal, which led them to adopt  a defensive attitude in reaction. A more 
gradual approach could enhance the impact  of the ESRB action and allow engaging 
in a constructive dialogue with potential addr essees at an early stage. There may be 
scope to expand the options for the ESRB to  exercise more ‘soft power’ for example 
via published letters or public statements as  a means to enhance the flexibility of the 
early warning function. It has been suggested that the figure of a full-time Managing 
Director of the ESRB could play a positiv e role in this respect by enhancing the 
ESRB visibility, and hence its capacity of influence before formal warnings and 
recommendations are issued. 
4. C ONCLUSION  
It is difficult to assess the ESRB's performance as a forward-looking macro-
prudential authority given its only recent inception. Nevertheless, the feedback 
received by the Commission from stakehol ders shows that during the first three 
years of its existence, the ESRB has mana ged to establish itself as a key component 
of the European supervisory framework. Stakeholders have recognised that the 
ESRB has been providing a unique forum for discussion on financial stability issues 
throughout the crisis and that it has rais ed awareness among policy makers on the 
macro-prudential dimension of financia l policies and regul ations. The ESRB 
remains an important component of the ESFS. 
Bearing in mind these achievements, there is , however, merit in drawing attention to 
important aspects of the ESRB's framework with a view to enha ncing the efficiency 
of macro-prudential overs ight at EU level.  
Some of the improvements can be implemen ted in the short term by the ESRB and 
would not require any change to the legi slative framework. This is the case as 
concerns for example:  
- A more proactive communication strategy and earlier interaction with 
potential addressees . This could include, in partic ular, a better exchange of 
information with the EFC and a stronger involvement of the ESRB in the EFC discussions and meetings. Th e ESRB could also make more use of ‘soft powers’ for 
example via published letters or public statements, as a means to enhance the 
flexibility of the early warning function before any formal warning or recommendations would be issued. 
- An increased frequency of the Steering Committee meetings.  This could be a 
way to enhance the role of the Steering Committee by allowing it to more closely 
monitor the work of the ESRB working structures in betw een General Board 
meetings. 
- Less formalism in the drafting of ESRB recommendations . This could 
contribute to shorten the deadlines for the adoption of the recommendations and 
enhance the ESRB reactivity, thus rein forcing its early warning function.  
- A rebalancing of the focus beyond banking risks.  The ESRB has started to 
widen its perspective and has worked recently more and more on non-banking 
issues. Such trend is welcome and should be pursued as it is important to maintain the cross-sectoral dimension of the ESRB mandate. 
At the same time, many issues identified by stakeholders as warranting further 
attention concern the ESRB Founding Regulat ions themselves. This would notably 
apply to the arrangements for the chai rmanship (as the ECB President was 
 
12 appointed for the first term of five year s, i.e. until 16 Decem ber 2015); the creation 
of a full-time Managing Director function; changes in the decision-making structure 
(e.g. amendments of the composition of the General Board and the Steering Committee, reduction of the size of the General Board, enhancement of the 
decision-making powers of the Steering Co mmittee etc.). The Commission intends 
to further examine the technical and legal as pects of the various issues raised and to 
launch preparatory work to assess the po ssible options for addr essing these issues. 
This work will in particular examine:  
- Organisational identity: There is a need to enhance the ESRB’s visibility and 
autonomy, while allowing it to continue to benefit from the ECB's reputation and 
expertise. The Commission will continue to reflect on this issue. The possibility of a 
two-tier managerial structure with the ECB President as Chair and a new full-time 
Managing Director in charge of the day-to -day activities of the ESRB is one option 
that could be further explored. 
- Internal governance:  The present internal structur e of the ESRB could benefit 
from reform. In particular, there is scope for streamlining decision-making 
arrangements involving the General Boar d and the Steering Committee by reducing 
the size of the General Board or delegatin g/transferring more powers to the Steering 
Committee. There may be further potenti al for improving the efficiency and 
effectiveness of the supporting advisory committees.  
- Toolbox:  The ESRB has issued a series of fo rmal warnings and recommendations 
in the past three years. Ho wever, there is scope to e xpand the ESRB toolbox so that 
it exercises more 'soft power' to enhance fl exibility and foster early intervention. On 
the other hand, there may be scope to more  clearly specify the role of ESRB in 
relation to legislative changes. 
The technical and legal work which the Co mmission will undertake will be able to 
take into account the important elements of  the overall financial architecture which 
are not yet in place today: the various p illars of the Banking Union are not fully 
established yet; Member States are in th e process of establishing national macro-
prudential authorities; the macro-prudentia l responsibility with in the ECB/SSM is 
being set up. Greater clarity on all these elements is needed before any possible 
legislative action could be pr oposed on the reform of the ES RB, as these will clearly 
impact the design of the proposal.