Proposal for a Regulation of the European Parliament and of the Council on Community macro prudential oversight of the financial system and establishing a European Systemic Risk Board {COM(2009) 500 final} {COM(2009) 501 final} {COM(2009) 502 final} {COM(2009) 503 final} {SEC(2009) 1234} {SEC(2009) 1235}
Date: 2009-09-23
Institutions: European Commission
Subjects: EU office or agency, credit institution, drafting of EU law, financial control, financial market, monetary policy

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.9.2009 
COM(2009) 499 final 

2009/0140 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on Community macro prudential oversight of the financial system and establishing a 
European Systemic Risk Board 

{COM(2009) 500 final} 
{COM(2009) 501 final} 
{COM(2009) 502 final} 
{COM(2009) 503 final} 
{SEC(2009) 1234} 
{SEC(2009) 1235} 

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EXPLANATORY MEMORANDUM 

1. 

Context of the proposal 

The  current  financial  crisis  has  highlighted  weaknesses  in  the  EU's  supervisory  framework, 
which  remains  fragmented  along  national  lines  despite  the  substantial  progress  achieved  in 
financial-market  integration  and  the  increased  importance  of  cross-border  entities.  Against 
this  background,  President  Barroso  requested  a  group  of  high  level  experts,  chaired  by  the 
former  Managing  Director  of  the  International  Monetary  Fund  (IMF),  Mr. Jacques  de 
Larosière, to make recommendations with a view to establishing a more efficient, integrated 
and sustainable supervisory framework. 

The key recommendations of the de Larosière group focus on:  

(i) 

(ii) 

Establishing a European Systemic Risk Board (ESRB) that would be responsible for 
macro-prudential oversight of the financial system within the Community in order to 
prevent or mitigate systemic risks, to avoid episodes of widespread financial distress, 
contribute  to  a  smooth  functioning  of  the  Internal  Market  and  ensure  a  sustainable 
contribution of the financial sector to economic growth. 

Establishing  a  European  System  of  Financial  Supervisors  (ESFS),  consisting  of  a 
network  of  national  financial  supervisors  working  in  tandem  with  new  European 
Supervisory Authorities (ESAs), created by the transformation of existing European 
supervisory  committees1  in  a  European  Banking  Authority  (EBA),  a  European 
Securities  and  Markets  Authority  (ESMA),  and  a  European  Insurance  and 
Occupational Pensions Authority (EIOPA). The ESFS should be built on shared and 
mutually-reinforcing  responsibilities,  combining  nationally-based  supervision  of 
firms  with  specific  tasks  at  the  European  level.  The  ESFS  would  also  foster 
harmonised rules and coherent supervisory practice and enforcement.  

the  Commission  and  European  Council  broadly  endorsed 

the 
In  March  2009, 
recommendations of the de Larosiere Group. On 27 May 2009, the Commission published a 
Communication  on  Financial  Supervision  in  the  EU,  describing  in  detail  how  these 
recommendations could be put into effect, focusing in particular on the establishment of the 
proposed ESFS and ESRB. The Ecofin Council of 9 June 2009 adopted detailed conclusions, 
in  which  it  agreed  with  the  objectives  laid  down  in  the  Commission  Communication  and 
stressed that financial stability, regulation and supervision in the EU must be enhanced in an 
ambitious  way.  The  European  Council  of  18-19  June  2009  subsequently  confirmed  that  the 
May  Commission  Communication  and  the  Ecofin  Council  conclusions  established  the  way 
forward  in  establishing  a  new  framework  for  micro-  and  macro-prudential  supervision.  The 
European  Council  requested  that  the  Commission  should  present  all  necessary  proposals  by 
early  autumn  2009  at  the  latest  so  that  the  new  framework  would  be  fully  in  place  in  the 
course of 2010. 

1 

These  are  the  Committee  of  European  Banking  Supervisors  (CEBS),  the  Committee  of  European 
Insurance and Occupational Pensions Supervisors (CEIOPS) and the Committee of European Securities 
Regulators (CESR). 

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2. 

Consultation of the interested parties 

The Commission conducted two open consultations on the overall package, i.e., both on the 
ESFS and the ESRB. A first consultation was conducted following publication of the report of 
the  de  Larosiere  Group  and  extended  from  10  March  to  10  April  2009  as  input  to  the 
Commission communication on Financial Supervision in Europe published on 27 May 2009. 
A summary of the 116 public submissions received can be found on: 

http://ec.europa.eu/internal_market/consultations/docs/2009/fin_supervision/summary_en.pdf 

A second consultation was conducted over the period from 27 May to 15 July 2009, whereby 
all financial services sector operators and their representative bodies, regulators, supervisors, 
other interested parties to were invited to comment on the more detailed reforms presented in 
the May 2009 Communication. The responses received were for the greater part supportive of 
the suggested reforms, with comments on detailed aspects of the proposed ESRB and ESFS. 
A summary of the public submissions received can be found on: 

http://ec.europa.eu/internal_market/consultations/docs/2009/fin_supervision_may/replies_su
mmary_en.pdf 

3. 

Impact assessment 

The  May  2009  Communication  was  accompanied  by  an  impact  assessment  analysing  the 
main  policy  options  for  establishing  the  ESFS  and  ESRB.  A  second  impact  assessment  has 
nevertheless been made in respect of the more detailed aspects of the proposal and is available 
on the Commission website. 

4. 

Legal elements of the proposal 

Only  with  arrangements  in  place  that  properly  acknowledge  the  interdependence  between 
micro-  and  macro-prudential  risks  can  all  stakeholders,  e.g.  financial  institutions,  investors 
and consumers, have sufficient confidence to engage in cross-border financial activities. Too 
often in the past, the focus of prudential supervision has been exclusively at the micro-level, 
with supervisors assessing the balance sheets of individual financial institutions without due 
consideration  for  interactions  between  institutions  and  between  institutions  and  the  broader 
financial system. Providing this broader perspective is the responsibility of macro-prudential 
supervisors.  These  supervisors  shall  monitor  and  assess  potential  financial-stability  risks 
arising from developments that can impact on a sectoral level or at the level of the financial 
system as a whole. By addressing such risks, the ESRB would be an essential building block 
for an integrated EU supervisory structure necessary to promote timely and consistent policy 
responses among the Member States thus preventing diverging approaches and so improve the 
functioning of the Internal Market.  

The ESRB is established on the basis of Article 95 of the EC Treaty as a body without legal 
personality. This legal basis allows the ESRB to have the core features outlined above and to 
have a mandate covering the whole financial sector without exceptions.. It allows moreover 
the  ESRB,  together  with  the  ESFS,  to  form  a  common  innovative  framework  for  financial 
supervision,  while  maintaining  a  clear  distinction  of  responsibilities  between  the  ESRB  and 
the other bodies.  

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The Regulation establishing the ESRB is completed by a Council decision which confers on 
the  European  Central  Bank  (ECB)  the  task  of  ensuring  the  Secretariat  of  the  ESRB. 
Accordingly,  the  ECB  will  provide  the  administrative,  logistical,  statistical  and  analytical 
support  to  the  ESRB.  This  decision  will  implement  for  the  first  time  Article  105(6)  of  the 
Treaty, which foresees the possibility for the Council, acting unanimously on a proposal from 
the  Commission  and  after  consulting  the  ECB  and  receiving  the  assent  of  the  European 
Parliament to confer upon the ECB specific tasks related to prudential supervision.  

5. 

Budgetary implications 

The budgetary cost related to the ESRB will be borne by the ECB and will not have any direct 
implication for the Community budget. The cost of such support will depend on the extent to 
which  the  existing  staff  and  resources  of  the  ECB  can  be  used  to  fulfil  the  tasks  of  the 
Secretariat of the ESRB. 

6. 

Detailed explanation of the proposal 

A Council Regulation is required to establish the ESRB as a new European body, independent 
from existing structures. 

6.1. 

Establishment of the ESRB 

The ESRB is an entirely new European body with no precedent, which shall be responsible 
for macro-prudential oversight. The objective of the ESRB shall be threefold: 

•  It  shall  develop  a  European  macro-prudential  perspective  to  address  the  problem  of 

fragmented individual risk analysis at national level; 

•  It  shall  enhance  the  effectiveness  of  early  warning  mechanisms  by  improving  the 
interaction  between  micro-and  macro-prudential  analysis.  The  soundness  of  individual 
firms  was  too  often  supervised  in  isolation  with  little  focus  on  the  degree  of 
interdependence within the financial system; 

•  It shall allow for risk assessments to be translated into action by the relevant authorities. 

Given the wide scope and the sensitivity of its missions, the ESRB shall not be conceived as a 
body with legal personality  and  binding powers but  rather  as  a  body  drawing its legitimacy 
from  its  reputation  for  independent  judgements,  high  quality  analysis  and  sharpness  in  its 
conclusions. 

The main decision-making body of the ESRB will be the General Board.  

The composition of the General Board is a key issue for the effectiveness of the ESRB. The 
choice is made to ensure a significant representation of central Banks. In most Member States, 
central  banks  have  some  degree  of  responsibility  for  macro-prudential  oversight  of  the 
financial sector. Because of this responsibility and acquired expertise, central banks are well-
placed  to  contribute  to  the  analysis  of  the  impact  on  financial  stability  of  the  inter-linkages 
between the financial sector and the broader macroeconomic environment. 

The  analytical  work  and  logistical  support  to  the  ESRB  will  be  provided  by  a  Secretariat, 
which will be ensured by the European Central Bank. Granting the Secretariat to the ECB will 
allow the ESRB to exploit the ECB's in-depth macro-prudential expertise and its central role 

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in the EU monetary system. In cooperation with national central banks, the European Central 
Bank compiles and disseminates a wide range of monetary statistics and indicators regarding 
financial  institutions.  The  European  Central  Bank  and  the  Eurosystem  monitor  cyclical  and 
structural  developments  in  the  euro  area/EU  banking  sector  as  well  as  in  other  financial 
sectors  to  assess  the  possible  vulnerabilities  in  the  financial  sector  and  its  resilience  to 
potential shocks.  

6.2. 

Tasks and powers of the ESRB 

The  ESRB  will  not  have  any  binding  powers  to  impose  measures  on  Member  States  or 
national  authorities.  It  has  been  conceived  as  a  "reputational"  body  with  a  high  level 
composition that should influence the actions of policy makers and supervisors by means of 
its moral authority. To this end, it will not only provide high quality assessment of the macro-
prudential situation but it may also issue risk warnings and recommendations which identify 
the potential unbalances in the financial system which are likely to increase systemic risks and 
the appropriate remedial actions. The ESRB will have a broad scope of activity, not limited to 
a specific type of entity or market. Warnings and recommendations may address any aspect of 
the  financial  system  which  may  generate  a  systemic  risk.  It  will  also  cooperate  with  the 
relevant international financial institutions (IMF, FSB…) and third countries bodies on issues 
related to macro-prudential oversight. This proposal being based on Article 95 of the Treaty, 
it is relevant for the European Economic Area (EEA). The modalities of cooperation between 
the EFTA States participating in the EEA and  the  ESRB  will  be discussed  in  the  EEA Joint 
Committee. 

6.2.1.  Warnings and recommendations 

An essential role of the ESRB is to identify risks with a systemic dimension and prevent or 
mitigate their impact on the financial system within the EU. To this end, the ESRB may issue 
risk warnings. These warnings should prompt early responses to avoid the build-up of wider 
problems and eventually a future crisis. If necessary, the ESRB may also recommend specific 
actions to address any identified risks. 

legally  binding.  However, 

ESRB  recommendations  will  not  be 
the  addressees  of 
recommendations  cannot  remain  passive  towards  a  risk  which  has  been  identified  and  are 
expected  to  react  in  some  way.  If  the  addressee  agrees  with  a  recommendation,  it  must 
communicate all the actions undertaken to follow what is prescribed in the recommendation. 
If the addressee does not agree with a recommendation and chooses not to act, the reasons for 
inaction must be properly explained. Hence, recommendations issued by the ESRB cannot be 
simply ignored.  

The  ESRB  shall  decide  on  a  case  by  case  basis  whether  warnings  and  recommendations 
should be made public. On the one hand, the publication of a recommendation may increase 
the  pressure  for  the  prompt  corrective  actions.  On  the  other  hand,  it  could  trigger  adverse 
financial-market  reactions.  Given  the  sensitive  judgement  to  be  made  in  deciding  on  the 
publication of warnings and recommendations, such decisions should be made on a case by 
case basis. Moreover, it seems appropriate that warnings and recommendations should not be 
made public unless a qualified majority of two-thirds of the General Board decides otherwise. 

The addressees of warnings and recommendations can be the Community as a whole, one or 
more  Member  States,  one  or  more  European  Supervisory  Authorities,  and  one  or  more 
national  supervisory  authorities.  All  warnings  and  recommendations  must  be  transmitted  to 

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the  Council,  while  those  related  to  supervisory  issues  should  also  be  transmitted  to  the 
relevant  ESA.  The  transmission  to  the  Council  and  to  the  ESAs  of  warnings  and 
recommendations  is  not  intended  as  a  way  to  water  down  their  content,  but  aims  on  the 
contrary at increasing the moral pressure on the addressee to act or explain and offering the 
possibility to the Council to comment it.  

6.2.2.  Access to information 

The interconnectedness of financial institutions and markets implies that the monitoring and 
assessment  of  potential  systemic  risks  should  be  based  on  a  broad  set  of  relevant  macro-
economic and micro-financial data and indicators. The ESRB should therefore have access to 
all the information necessary to perform its duties while preserving the confidentiality of these 
data.  The  ESRB  will  be  able  to  rely  on  the  broad  set  of  data  already  collected  through  the 
Eurosystem by the ECB on Monetary and Financial Institutions. Additionally to fulfil its tasks 
and  ensure  the  necessary  consistency  between  the  micro-supervisors  and  the  ESRB,  the 
ESRB, through its secretariat, will also be able to request the ESAs to provide information in 
summary or collective form. Should this information be not available (or not made available), 
the  ESRB  will  have  the  possibility  to  request  data  directly  from  national  supervisory 
authorities,  national  central  banks  (NCBs)  or  other  authorities  of  Member  States.  The 
regulation furthermore creates a general obligation on the ESAs, the NCBs and the Member 
States to provide to the ESRB all the information needed for the fulfilment of its tasks, thus 
guaranteeing a wide access to the data needed for the macro-prudential analysis.  

As  some  individual  institutions  can  be  systemic  in  nature  (because  of  their  size,  their 
interconnectedness with other financial institutions or their risk profile), the ESRB – through 
its secretariat - shall also have access to individual data upon a reasoned request to the ESAs.  

6.3. 

Relationship with the ESFS 

The proposed framework for EU supervision can only work if the ESRB and ESFS cooperate 
efficiently.  Indeed,  the  objective  of  the  reform  is  to  ensure  a  smoother  interaction  of 
supervision at the macro-prudential and micro-prudential levels. In fulfilling its role as macro-
prudential  supervisor,  the  ESRB  will  need  a  timely  flow  of  harmonised  micro-level  data, 
while  micro-prudential  supervision  by  national  authorities  will  benefit  from  the  ESRB’s 
insights into the macro-prudential environment. The Regulations also specify the procedures 
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 authorities. 

6.4. 

Confidentiality 

The Members of the General Board of the ESRB and the staff working for the ESRB shall be 
subject  to  the  obligation  of  professional  secrecy.  Any  confidential  information  received  by 
Members  of  the  General  Board  or  by  the  persons  who  work  in  connection  with  the  ESRB 
shall  not  be  released  outside  except  in  summary  or  collective  form  so  that  individual 
institutions cannot be identified. These confidentiality rules apply notably to the ECB staff as 
the ECB will provide the Secretariat to the ESRB. In this respect, information acquired by the 
ECB  in  its  role  of  Secretariat  to  the  ESRB,  shall  only  be  used  for  the  fulfilment  of  ESRB 
tasks. In line with the existence practice in the EU institutions, the persons who have worked 
in  connection  with  the  ESRB  will  still  be  bound  by  the  obligation  of  confidentiality,  even 
after their duties have ceased. 

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The  addressees,  the  Council  and  the  ESAs  shall  also  take  the  measures  necessary  for  the 
protection of the confidential nature of the warnings and recommendations.  

6.5. 

The internal organisation of the ESRB 

The  ESRB  shall  be  composed  of:  (i)  a  General  Board;  (ii)  a  Steering  Committee  and  (iii)  a 
Secretariat.  

6.5.1.  The General Board 

The General Board is the decision making body of the ESRB and as such, will be responsible 
for  the  adoption  of  the  warnings  and  recommendations  described  in  section  6.2.1  of  this 
explanatory memorandum.  

The members of the General Board with voting rights are: 

–  the Governors of national central banks; 

–  the President and the vice-President of the ECB; 

–  a Member of the European Commission; 

–  the Chairpersons of the three European Supervisory Authorities. 

The members of the General Board without voting rights are: 

–  one  high  level  representative  per  Member  State  of  the  competent  national  supervisory 

authorities; 

–  the President of the Economic and Financial Committee. 

The representative of the national supervisory authorities may rotate depending on the matters 
that  are  being  discussed  (this  rotation  will  be  needed  in  a  large  number  of  Member  States, 
where  there  are  different  bodies  for  supervising  for  instance  the  financial  and  the  insurance 
sector).  

The members of the Board shall act impartially. This implies that when performing activities 
related to the ESRB, they shall neither follow instructions nor take into account the individual 
interests  of  any  Member  State.  Impartiality  is  a  crucial  requirement,  as  the  interests  of  an 
individual  Member  State  may  not  always  coincide  with  the  ESRB's  main  objective, 
maintaining financial stability in the European Union as a whole. 

The members of the General Board with voting rights shall each have one vote. The decisions 
of the General Board will be adopted by simple majority, (except for the decision to make a 
warning or recommendation public,  which  requires a qualified majority  of two-thirds  of the 
votes. In line with the common practice, a quorum is needed for the votes.)  

The General Board shall meet at least 4 times per year. The meetings shall be convened on the 
initiative of the Chair or at the request of one third of the Members with voting rights. 

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6.5.2.  Chairperson 

The Chair will be elected for 5 years from among the Members of the General Board of the 
ESRB which are also Members of the General Council of the ECB. The Chair will preside the 
General Board as well as the Steering Committee and instruct the Secretariat of the ESRB on 
behalf of the General Board. The Chair shall be able to convene extraordinary meetings of the 
General Board on its own initiative. As regards voting modalities within the General Board, 
the Chair will have a casting vote in the event of a tie. The Chair shall represent the ESRB 
externally. 

6.5.3.  The Steering Committee 

Given the size of the General Board –which will comprise a total of 61 members-, a Steering 
Committee  will  assist  the  decision-making  process  of  the  General  Board.  The  Steering 
Committee  will  prepare  the  meetings  of  the  General  Board,  review  the  documents  to  be 
discussed and monitor the progress of the ESRB's on-going work.  

The  Steering  Committee  will  comprise  the  Chair  and  Vice-Chair  of  the  General  Board,  the 
Chairpersons  of  the  three  ESAs,  the  President  of  the  EFC,  the  Member  of  the  Commission 
and five members of the General Board which are also members of the General Council of the 
ECB (12 members). 

6.5.4.  The Secretariat  

The  ECB  will  ensure  the  Secretariat  to  the  ESRB.  The  Secretariat  will  receive  instructions 
directly from the Chair of the General Board. 

The Head of the Secretariat will be appointed by the ECB, in consultation with the General 
Board  of  the  ESRB.  The  Secretariat  will  provide  analytical,  statistical,  administrative  and 
logistical support to the ESRB, including the preparation of the meetings, the collection and 
processing  of  qualitative  and  quantitative  information  destined  to  the  ESRB,  the  conduct  of 
analysis and assessments necessary for the fulfilment of the ESRB tasks. The Secretariat will 
also provide support to the work of the Advisory Technical Committee (see 6.5.5.). 

6.5.5 The Advisory Technical Committee and other sources of advice 

The  role  of  the  Advisory  Technical  Committee  (hereinafter,  referred  to  as  the  "ATC")  is  to 
provide advice and assistance to the General Board on the issues that are within the scope of 
the ESRB, on request from the latter.  

The members of the ATC are: 

–  one representative of each national central bank 

–  one representative from the ECB 

–  one representative of the national supervisory authority per Member State 

–  one representative of each European Supervisory Authority 

–  two representatives of the European Commission 

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–  one representative of the EFC. 

The Chair of the ATC shall be appointed by the General Board on a proposal from its Chair. 
The representative of the national supervisory authorities may rotate depending on the matters 
that are being discussed. 

6.6. 

Reporting obligations 

The  ESRB  shall  be  accountable  to  the  European  Parliament  and  to  the  Council  and  shall 
therefore report to them at least annually. The European Parliament and the Council may also 
require the ESRB to report more often. 

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2009/0140 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on Community macro prudential oversight of the financial system and establishing a 
European Systemic Risk Board 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
95 thereof, 

Having regard to the proposal from the Commission2, 

Having regard to the opinion of the European Central Bank3, 

Having regard to the opinion of the European Economic and Social Committee4, 

Acting in accordance with the procedure laid down in Article 251 of the Treaty5, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

The  financial  crisis  has  revealed  important  shortcomings  in  financial  supervision, 
which  has  failed  to  prevent  the  accumulation  of  excessive  risks  within  the  financial 
system  and  has  in  particular  highlighted  the  weaknesses  of  the  existing  macro-
prudential oversight. 

In  November  2008,  the  Commission  mandated  a  High  Level  Group  chaired  by  Mr 
Jacques de Larosière (the "de Larosière Group") to make recommendations on how to 
strengthen  European  supervisory  arrangements  with  a  view  to  better  protecting  its 
citizens and rebuilding trust in the financial system. 

In  its  final  report  presented  on  25  February  2009,  the  de  Larosière  Group 
recommended,  among  other  things,  the  establishment  of  a  Community  level  body 
charged with overseeing risk in the financial system as a whole. 

In  its  Communication  entitled  "Driving  European  Recovery"  of  4  March  20096,  the 
Commission  welcomed  and  broadly  supported  the  recommendations  of  the  de 
Larosière  Group.  At  its  meeting  of  19  and  20  March  2009,  the  European  Council 

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OJ C , , p. . 
Decision XXXX 
OJ C , , p. . 
OJ C , , p. . 
COM(2009) 114. 

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(5) 

(6) 

(7) 

(8) 

(9) 

agreed on the need to improve the regulation and supervision of financial institutions 
within the EU and to use the report from the de Larosière Group as a basis for action. 

In its Communication entitled "European Financial Supervision" of 27 May 20097, the 
Commission set out  a  series  of  reforms to the current arrangements for safeguarding 
financial  stability  at  the  EU  level,  notably  including  the  creation  of  a  European 
Systemic Risk Board (ESRB) responsible for macro-prudential oversight. The Council 
on 9 June 2009 and the European Council at its meeting of 18 and 19 June supported 
the  view  of  the  Commission  and  welcomed  the  Commission's  intention  to  bring 
forward  legislative  proposals  so  that  the  new  framework  is  in  place  in  the  course  of 
2010. In line with the views of the Commission, it concluded inter alia that the ECB 
“should  provide  analytical,  statistical,  administrative  and  logistical  support  to  the 
ESRB,  also  drawing  on  technical  advice  from  national  Central  Banks  and 
supervisors”. 

The  present  Community  arrangements  place  too  little  emphasis  on  macro-prudential 
oversight.  Responsibility  for  macro-prudential  analysis  remains  fragmented,  and  is 
conducted by various authorities at different levels with no mechanism to ensure that 
macro-prudential 
that  warnings  and 
recommendations are issued clearly, followed up and translated into action. 

risks  are  adequately 

identified  and 

The  Community  needs  a  specific  body  responsible  for  macro-prudential  oversight 
across the EU financial system, which would identify risks to financial stability and, 
where necessary, issue risk warnings and recommendations for action to address such 
risks. Consequently,  a  European  Systemic Risk  Board  (ESRB)  should be  established 
as a new independent body, responsible for conducting macro-prudential oversight at 
the European level. 

The  ESRB  should,  where  appropriate,  issue  warnings  and  recommendations  of  a 
general  nature  concerning  the  Community  as  a  whole,  individual  Member  States  or 
groups of Member States, with a specified timeline for the relevant policy response.  

In order to increase their weight and legitimacy, such warnings and recommendations 
should  be  transmitted  through  the  Council  and,  where  appropriate,  the  European 
Banking Authority established by Regulation (EC) No …/… the European Parliament 
and  of  the  Council8,  the  European  Securities  and  Markets  Authority  established  by 
Regulation  (EC)  No  …/…  of  the  European  Parliament  and  of  the  Council9,  and  the 
European Insurance or the Occupational Pension Authority established by Regulation 
(EC) No …/…of the European Parliament and of the Council10.  

(10)  The  ESRB  should  also  monitor  compliance  with  its  recommendations,  based  on 
reports from addressees, in order to ensure that its warnings and recommendations are 
effectively  followed.  Addressees  of  recommendations  should  act  on  them  unless 
inaction can be adequately justified ("act or explain" mechanism). 

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COM(2009) 252. 
OJ L , , p. . 
OJ L , , p. . 
OJ L , , p. . 

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(11)  The  ESRB  should  decide  whether  a  recommendation  should  be  kept  confidential  or 
made public, bearing in mind that public disclosure can help to foster compliance with 
the recommendations in certain circumstances. 

(12)  The ESRB should report to the European Parliament and the Council at least annually, 

and more frequently in the event of widespread financial distress. 

(13)  The ECB and National Central banks should have a leading role in macro-prudential 
oversight because of their expertise and existing responsibilities in the area of financial 
stability. The participation of micro-prudential supervisors in the work of the ESRB is 
essential to ensure that assessment of macro-prudential risk is based on complete and 
accurate  information  about  developments  in  the  financial  system.  Accordingly,  the 
chairpersons of the European Supervisory Authorities should be members with voting 
rights,  while  one  national  supervisor  per  Member  State  should  attend  as  Member 
without voting rights.  

(14)  The participation of a Member of the Commission will help to establish a link with the 
macro-economic and financial surveillance  of the Community, while the presence of 
the  Chairman  of  the  Economic  and  Financial  Committee  reflects  the  role  of  finance 
ministries in safeguarding financial stability. 

(15) 

It is essential that the members of the ESRB perform their duties impartially and only 
consider the financial stability of the European Union as a whole. Voting on warnings 
and recommendations within the ESRB should not be weighted and decisions should 
as a rule be taken by a simple majority. 

(16)  The  interconnectedness  of  financial  institutions  and  markets  implies  that  the 
monitoring and assessment of potential systemic risks should be based on a broad set 
of  relevant  macro-economic  and  micro-financial  data  and  indicators.  The  ESRB 
should  therefore  have  access  to  all  the  information  necessary  to  perform  its  duties 
while preserving the confidentiality of these data as required. 

(17)  Market participants can provide valuable input to the understanding of the evolutions 
affecting the financial system. Where appropriate, the ESRB should therefore consult 
private  sector  stakeholders  (financial  sector  representatives,  consumer  associations, 
user  groups  in  the  financial  services  area  established  by  the  Commission  or 
Community legislation…) and give them a fair opportunity to provide their comments. 

(18)  Given  the  integration  of  international  financial  markets  at  international  level  and  the 
contagion risk of financial crises, the ESRB should coordinate with the International 
Monetary  Fund  and  the  newly  established  Financial  Stability  Board,  which  are 
expected to provide early warnings of macro-prudential risks at the global level.  

(19)  The establishment of the ESRB should contribute directly to achieving the objectives 
of  the  Internal  Market.  The  Community  macro  prudential  oversight  of  the  financial 
system  is  an  integral  part  of  the  overall  new  supervisory  arrangements  in  the 
Community  as  the  macro-prudential  aspect  is  closely  linked  to  the  micro-prudential 
supervisory  tasks  attributed  to  the  European  Supervisory  Authorities.  Only  with 
arrangements in place that properly acknowledge the interdependence between micro- 
and macro-prudential risks can all stakeholders have sufficient confidence to engage in 
cross-border  financial  activities.  The  ESRB  should  monitor  and  assess  risks  to 

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financial stability arising from developments that can impact on a sectoral level or at 
the  level  of  the  financial  system  as  a  whole.  By  addressing  such  risks,  the  ESRB 
should directly contribute to an integrated Community 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.  

(20)  Since  an  effective  macro-prudential  oversight  of  the  Community  financial  system 
cannot be sufficiently achieved by the Member States because of the integration of the 
European financial markets, the Community may adopt measures in accordance with 
the principle of subsidiarity, as set out in Article 5 of the Treaty. In accordance with 
the principle of proportionality, as set out in that Article, this Regulation does not go 
beyond what is necessary to achieve those objectives, 

HAVE ADOPTED THIS REGULATION: 

CHAPTER I 
GENERAL PROVISIONS 

Article 1 
Establishment 

A European Systemic Risk Board, hereinafter referred to as 'ESRB', is established. 

Article 2 
Definitions 

For the purpose of this Regulation, the following definitions shall apply: 

(a) 

'financial  institution'  means  any  undertaking  whose  main  business  is  to  take 
deposits, grant credits, provide insurance services or other financial services to 
its clients or members or engage in financial investment or trading activities on 
its own account. 

(b) 

'financial  system'  means  all  financial  institutions,  markets  and  market 
infrastructures.  

Article 3 
Mission, Objectives and Tasks 

1. 

The  ESRB  shall  be  responsible  for  the  macro-prudential  oversight  of  the  financial 
system within  the Community in order to prevent or mitigate  systemic risks within 
the  financial  system,  so  as  to  avoid  episodes  of  widespread  financial  distress, 
contribute  to  a  smooth  functioning  of  the  Internal  Market  and  ensure  a  sustainable 
contribution of the financial sector to economic growth.  

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2. 

For the purposes of paragraph 1, the ESRB shall carry out the following tasks: 

(a) 

Determine  and/or  collect,  as  appropriate,  and  analyse  all  the  information 
relevant for the mission described in paragraph 1; 

(b) 

identify and prioritise such risks; 

(c) 

(d) 

(e) 

(f) 

(g) 

issue warnings where risks are deemed to be significant; 

issue recommendations for remedial action where appropriate; 

monitor the follow-up to warnings and recommendations; 

cooperate  closely  with  the  European  System  of  Financial  Supervisors  and  , 
where  appropriate,  provide  the  European  Supervisory  Authorities  with  the 
information on systemic risks required for the achievement of their tasks; 

coordinate  with 
the  International 
Monetary Fund and the Financial Stability Board as well as the relevant bodies 
in third countries on matters related to macro-prudential oversight; 

institutions,  particularly 

international 

(h) 

carry out other related tasks as specified in Community legislation. 

CHAPTER II 
ORGANISATION 

Article 4 
Structure 

1. 

2. 

3. 

4. 

5. 

The ESRB shall have a General Board, a Steering Committee and a Secretariat. 

The General  Board shall take the decisions  necessary  to  ensure  the  performance  of 
the tasks entrusted to the ESRB. 

The Steering Committee shall assist in the decision-making process of the ESRB by 
supporting  the  preparation  of  the  meetings  of  the  General  Board,  reviewing  the 
documents to be discussed and monitoring the progress of the ESRB's ongoing work.  

The  Secretariat  shall  provide  analytical,  statistical,  administrative  and  logistical 
support  to  the  ESRB  under  the  direction  of  the  Chair  of  the  General  Board  in 
accordance with Council Decision XXXX/EC/200911. 

The  ESRB  shall  be  supported  by  the  Advisory  Technical  Committee  referred  to  in 
Article 12, which shall provide advice and assistance on issues relevant to the work 
of the ESRB, when requested. 

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Article 5 
Chairmanship 

1. 

2. 

3. 

4. 

The Chair and Vice-Chair of the ESRB shall be elected for a term of 5 years by and 
from  the  Members  of  the  General  Board  who  are  also  members  of  the  General 
Council of the ECB. They may be re-elected. 

The  Chair  shall  preside  at  the  meetings  of  the  General  Board  and  the  Steering 
Committee. 

The  Vice-Chair  shall  preside  at  the  General  Board  and/or  the  Steering  Committee 
when the Chair cannot participate in a meeting. 

If the term of office of the Members of the General Council of the ECB elected as 
Chair  or  Vice-Chair  ends  before  the  completion  of  the  5  year  term  or  if  for  any 
reason the Chair or Vice Chair are unable to discharge their duties, a new Chair or 
Vice Chair shall be elected in accordance with paragraph 1. 

5. 

The Chair shall represent the ESRB externally. 

Article 6 
General Board  

1. 

The following persons shall be Members of the General Board with voting rights  

(a) the President and the Vice-President of the ECB; 

(b) the Governors of the national central banks; 

(c) a Member of the European Commission; 

(d) the Chairperson of the European Banking Authority; 

(e) the Chairperson of the European Insurance and Occupational Pensions Authority; 

(f) the Chairperson of the European Securities and Markets Authority. 

2. 

The following persons shall be Members of the General Board without voting rights: 

(a)  one  high  level  representative  per  Member  State  of  the  competent  national 
supervisory authorities; 

(b) the President of the Economic and Financial Committee. 

3. 

When  the  agenda  of  a  meeting  contains  points  pertaining  to  the  competence  of 
several  national  supervisory  authorities  in  the  same  Member  State,  the  respective 
high  level  representative  shall  only  participate  in  the  discussion  on  items  falling 
under his or her competence.  

4. 

The General Board shall establish the Rules of Procedure for the ESRB.  

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1. 

2. 

1. 

2. 

3. 

4. 

1. 

2. 

3. 

Article 7 
Impartiality  

When  participating  in  the  activities  of  the  General  Board  and  of  the  Steering 
Committee or when conducting any other activity relating to the ESRB, the Members 
of  the  ESRB  shall  perform  their  duties  impartially  and  shall  neither  seek  nor  take 
instructions from Member States.  

Member  States  shall  not  seek  to  influence  the  members  of  the  ESRB  in  the 
performance of their ESRB tasks.  

Article 8 
Professional secrecy 

Members of the General Board of the ESRB and any other persons who work or who 
have  worked  for  or  in  connection  with  the  ESRB  (including  the  relevant  staff  of 
central  banks,  Advisory  Technical  Committee,  ESAs  and  competent  national 
supervisory  authorities  of  the  Member  States),  shall  be  required  not  to  disclose 
information covered by professional secrecy, even after their duties have ceased.  

Information  received  by  Members  of  the  ESRB  may  only  be  used  in  the  course  of 
their duties and in performing the tasks set out in Article 3(2). 

Without prejudice to Article 16 and the application of criminal law, any confidential 
information  received  by  the  persons  referred  to  in  paragraph  1  whilst performing 
their  duties,  may  not  be  divulged  to  any  person  or  authority  whatsoever,  except  in 
summary  or  aggregate  form,  such  that  individual  financial  institutions  cannot  be 
identified. 

The  ESRB  shall  agree  with  the  European  Supervisory  Authorities  on  specific 
individual  financial 
confidentiality  procedures 
institutions, or information where individual financial institutions can be identified.  

information  on 

to  safeguard 

Article 9 
Meetings of the General Board 

Ordinary plenary meetings of the General Board shall be convened by the Chair of 
the General Board and shall occur at least four times a year. Extraordinary meetings 
may be convened at the initiative of the Chair of the General Board or at the request 
of at least one third of the Members with voting rights. 

Each  Member  shall  be  present  in  person  at  the  meetings  of  the  General  Board  and 
may not be represented.  

By way of derogation from paragraph 2, a Member who is prevented from attending 
the meetings for a prolonged period may appoint an alternate. That Member may also 
be replaced by a person who has been formally appointed under the rules governing 
the institution concerned for the substitution of representatives on a temporary basis.  

4. 

The proceedings of the meetings shall be confidential. 

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Article 10 
Voting modalities of the General Board 

1. 

2. 

3. 

Each Member of the General Board with a voting right shall have one vote.  

The  General  Board  shall  act  by  a  simple  majority  of  Members  present  with  voting 
rights. In the event of a tie, the Chair shall have the casting vote. 

A quorum of two-thirds of the Members with voting rights is needed for any vote to 
be taken by the General Board. If the quorum is not met, the Chair may convene an 
extraordinary  meeting  at  which  decisions  may  be  taken  without  regard  to  the 
quorum.  

Article 11 
Steering Committee 

1. 

The Steering Committee shall be composed of the following: 

(a) the Chair of the ESRB; 

(b) the Vice-Chair of the ESRB; 

(c) five other members of the General Board who are also members of the General 
Council of the ECB. They shall be elected by and from the Members of the General 
Board who are also members of the General Council of the ECB for a period of two 
years.  

(d) a Member of the European Commission; 

(e) the Chairperson of the European Banking Authority; 

(f) the Chairperson of the European Insurance and Occupational Pensions Authority; 

(g) the Chairperson of the European Securities and Markets Authority; 

(h) the President of the Economic and Financial Committee. 

Any vacancy for an elected Member of the Steering Committee shall be filled by the 
election of a new Member by the General Board. 

2. 

Meetings  of  the  Steering  Committee  shall  be  convened  by  the  Chair  at  least 
quarterly,  before  each  meeting  of  the  General  Board.  The  Chair  may  also  convene 
ad-hoc meetings. 

Article 12 
Advisory Technical Committee 

1. 

The Advisory Technical Committee shall be composed of the following: 

(a) 

a representative of each national central bank and a representative of the ECB; 

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(b)  one  representative  per  Member  State  of  the  competent  national  supervisory 
authority; 

(c) 

one representative of the European Banking Authority; 

(d)  one  representative  of  the  European  Insurance  and  Occupational  Pensions 
Authority; 

(e) 

one representative of the European Securities and Markets Authority; 

(f) 

two representatives of the Commission; 

(g)  one representative of the Economic and Financial Committee.  

The supervisory authorities of each Member State shall choose one representative in 
the  Committee.  When  the  agenda  of  a  meeting  contains  points  pertaining  to  the 
competence of several national supervisory authorities in the same Member State, the 
respective representative shall participate only for the agenda items falling under his 
competence. 

2. 

3. 

4. 

The Chair of the Advisory Technical Committee shall be appointed by the General 
Board following a proposal from the Chair of the General Board.  

The Committee shall perform the tasks referred to in Article 4(5) at the request of the 
Chair of the General Board. 

The ESRB Secretariat shall support the work of the Advisory Technical Committee 
and the Head of the Secretariat shall participate in the meetings.  

Article 13 
Other sources of advice 

In performing its tasks, the ESRB shall seek, where appropriate, the advice of relevant private 
sector stakeholders.  

Article 14 
Access to documents 

1. 

2. 

3. 

Regulation  (EC)  No  1049/2001  of  the  European  Parliament  and  of  the  Council12 
shall apply to documents held by the ESRB. 

The  General  Board  shall  adopt  the  practical  arrangements  for  implementing 
Regulation  (EC)  No  1049/2001  within  six  months  after  the  entry  into  force  of  this 
Regulation.  

Decisions taken by the ESRB pursuant to Article 8 of Regulation (EC) No 1049/2001 
may  form  the  subject  of  a  complaint  to the  Ombudsman  or  of  an  action  before  the 

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Court of Justice, under the conditions laid down in Articles 195 and 230 of the EC 
Treaty respectively. 

CHAPTER III 
TASKS 

Article 15 
Collection and exchange of information  

1. 

2. 

3. 

4. 

5. 

1. 

2. 

3. 

The ESRB shall provide the European Supervisory Authorities with the information 
on systemic risks necessary for the achievement of their tasks. 

The European Supervisory Authorities, the national central banks and Member States 
shall cooperate closely with the ESRB and provide all the information necessary for 
the fulfilment of its tasks in accordance with Community legislation.  

The  ESRB  may  request  information  from  the  European  Supervisory  Authorities  in 
summary  or  collective  form,  such  that  individual  financial  institutions  cannot  be 
identified. If the requested data are not available to those Authorities or are not made 
available  in  a  timely  manner,  the  ESRB  may  request  the  data  from  national 
supervisory authorities, national central banks or other authorities of Member States. 

The ESRB may address a reasoned request to the European Supervisory Authorities 
to provide data that are not in summary or collective form.  

Before  requesting  information  in  accordance  with  paragraphs  3  and  4,  the  ESRB 
shall  duly  consult  the  relevant  European  Supervisory  Authority  in  order  to  ensure 
that the request is proportionate.  

Article 16 
Warnings and recommendations 

When  significant  risks  to  the  achievement  of  the  objective  in  article  3(1)  are 
identified,  the  ESRB  shall  provide  warnings  and,  where  appropriate,  issue 
recommendations for remedial action. 

Warnings or recommendations issued by the ESRB in accordance with points (c) and 
(d)  of  Article  3(2)  may  be  either  of  a  general  or  specific  nature  and  shall  be 
addressed to the Community as a whole or to one or more Member States, or to one 
or  more  of  the  European  Supervisory  Authorities,  or  to  one  or  more  national 
supervisory authorities. Recommendations shall include a specified timeline for the 
policy  response.  Recommendations  may  also  be  addressed  to  the  Commission  in 
respect of the relevant Community legislation. 

The  warnings  or  recommendations  shall  also  be  transmitted  to  the  Council  and, 
where  addressed  to  one  or  more  national  supervisory  authority,  to  the  European 
Supervisory Authorities.  

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4. 

Any  Member  of  the  Board  may  request  a  vote  on  a  draft  warning  or  a  draft 
recommendation at any time. 

Article 17 
Follow-up of the ESRB recommendations 

Where a recommendation referred to in letter (d) of Article 3(2) is addressed to one 
or  more  Member  States,  one  or  more  European  Supervisory  Authorities,  or  one  or 
more national supervisory authorities, the addressees shall communicate the actions 
undertaken  in  response  to  the  recommendations  to  the  ESRB  or  explain  why  they 
have  not  acted.  The  Council  and,  where  relevant,  the  European  Supervisory 
Authorities shall be informed. 

If  the  ESRB  decides  that  its  recommendation  has  not  been  followed  and  that  the 
addressees  have  failed  to  explain  their  inaction  appropriately,  it  shall  inform  the 
Council and, where relevant, the European Supervisory Authorities concerned. 

Article 18 
Public warnings and recommendations 

The  General  Board  of 
the  ESRB  shall  decide  whether  a  warning  or  a 
recommendation  should  be  made  public  on  a  case-  by-case  basis.  By  derogation  to 
Article  10(2),  a  qualified  majority  of  two-thirds  of  the  votes  is  needed  to  make  a 
warning or recommendation public. 

Where 
recommendation public, it shall inform the addressee(s) in advance.  

the  General  Board  of 

the  ESRB  decides 

to  make  a  warning  or 

Where  the  general  Board  of  the  ESRB  decides  not  to  make  a  warning  or  a 
recommendation  public,  the  addressee  and  where  appropriate,  the  Council  and  the 
European  Supervisory  Authorities,  shall  take  all  the  measures  necessary  for  the 
protection of their confidential nature. The President of the Council may decide not 
to circulate a warning or recommendation to the other Members of the Council. 

CHAPTER IV 
FINAL PROVISIONS 

Article 19 
Reporting obligations 

The  ESRB  shall  report  at  least  annually  to  the  European  Parliament  and  to  the 
Council. 

The ESRB shall also examine specific issues at the invitation of the Council or the 
Commission.  

1. 

2. 

1. 

2. 

3. 

1. 

2. 

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Article 20 
Review clause 

The Council shall examine this Regulation on the basis of a report from the Commission three 
years after its entry into force and shall determine whether the missions and organisation of 
the ESRB need to be reviewed after having received an opinion from the ECB.  

Article 21 
Entry into force 

This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels,  

For the European Parliament 
The President 

For the Council 
The President 

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