COMMISSION STAFF WORKING DOCUMENT EFFECT ANALYSIS Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 1092/2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board
Date: 2017-09-20
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU office or agency, credit institution, economic stabilisation, financial control, financial market, market supervision, monetary policy, operation of the Institutions

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 20.9.2017  SWD(2017) 313 final   COMMISSION STAFF WORKING DOCUMENT EFFECT ANALYSIS Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  amending Regulation (EU) No 1092/2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board  {COM(2017) 538 final}  
 
 
Contents 
1. 

Introduction ..................................................................................................................................... 3 

2.  Policy context .................................................................................................................................. 4 

2.1.  Nature and size of the markets concerned ............................................................................. 4 

2.2. 

Scope of this Effects Analysis .................................................................................................. 4 

3. 

Shortcomings identified .................................................................................................................. 5 

3.1. 

Effective size and composition of the ESRB General Board .................................................... 6 

3.1.1. 

Size of ESRB General Board ............................................................................................. 6 

3.1.2. 

Composition of ESRB General Board ............................................................................... 6 

3.2. 

ESRB autonomy and external representation ......................................................................... 7 

3.2.1. 

ESRB Chair ....................................................................................................................... 7 

3.2.2. 

ESRB Vice-Chairs .............................................................................................................. 8 

3.2.3. 

External representation of the ESRB ............................................................................... 8 

3.3. 

Internal organisation and working structures of the ESRB ..................................................... 8 

3.3.1. 

Steering Committee ........................................................................................................ 9 

3.3.2. 

Advisory Technical Committee ........................................................................................ 9 

3.3.3. 

ESRB Secretariat .............................................................................................................. 9 

4.  Proposed changes to the current framework ............................................................................... 10 

4.1. 

Effective size and composition of the ESRB General Board .................................................. 10 

4.2. 

ESRB autonomy and external representation ....................................................................... 11 

4.2.1. 

ESRB Chair ..................................................................................................................... 11 

4.2.2. 

ESRB Vice-Chairs ............................................................................................................ 12 

4.2.3. 

Enhancing role of head of the ESRB Secretariat ............................................................ 12 

4.3. 

Internal organisation and working structures of the ESRB ................................................... 13 

4.3.1. 

Steering Committee ...................................................................................................... 13 

4.3.2. 

Advisory Technical Committee ...................................................................................... 13 

4.3.3. 

ESRB Secretariat ............................................................................................................ 13 

5.  Overall effect ................................................................................................................................. 13 

6.  Monitoring and Evaluation ............................................................................................................ 14 

2 

 
 
 
 
 
 
1. 

Introduction  

Macro-prudential policy is concerned with the monitoring and identification of systemic risks and 
the use of primarily prudential tools to safeguard financial stability. Systemic risk in turn denotes 
the  risk  of  widespread  disruption  to  the  provision  of  financial  services  that  is  caused  by  an 
impairment of all, or parts, of the financial system, which can cause serious negative consequences 
for  the  real  economy.  Fundamental  to  the  definition  is  the  notion  of  negative  externalities  from  a 
disruption  or  failure  in  a  financial  institution,  market  or  instrument.  Macro-prudential  policy  thus 
focuses on the "global picture" of the financial system and aims to reduce the probability or mitigate 
the possible impact of financial crises by identifying and addressing systemic risks well in advance.  

Macro-prudential policy is a relatively new addition to the policy framework in the area of financial 
stability.  One of  the key  lessons  of  the  financial  crisis,  as  highlighted in  the  de Larosière  Report  of 
2009,  was  that  micro-prudential  regulation  and  supervision  focusing  on  individual  institutions  had 
left important gaps in the oversight of the financial system. These gaps related to (a) the collective 
behaviour of financial institutions within any given sector of the system; (b) the interaction between 
the different sectors within the financial system; and (c) the interaction of the financial system with 
the rest  of the economy. The importance of a  more holistic view of financial-system oversight was 
clearly demonstrated by the system-wide nature of the financial crisis and the extent to which large 
financial imbalances had been fuelled by a pre-crisis credit boom.  

The macro-prudential policy framework in the EU has been built in progressive steps, and consists 
of two components. The first component is the institutional framework, which is centred around the 
European Systemic Risk Board (ESRB), a new body set up in December 2010. The ESRB has a broad 
membership, notably including national central banks (NCBs), supervisors and European institutions, 
and  has  non-binding  powers  to  shape  macro-prudential  policy  in  the  EU.  The  governance  of  the 
institutional  framework  is  important  for  the  effectiveness  and  efficiency  of  the  monitoring  of 
systemic  risk  and  use  of  available  powers.  The  second  component  is  a  set  of  macro-prudential 
instruments  that  can be implemented  to limit systemic risks or strengthen resilience against them. 
Several  instruments  are  anchored  in  the  Capital  Requirements  Directive IV/Capital  Requirements 
Regulation  (CRD IV/CRR),  applicable  as  of  January  2014,  although  some  other  macro-prudential 
instruments  exist  in  national  or  EU  legislation.  Since  the  setting  up  of  the  macro-prudential 
framework, the institutional environment has evolved at the EU level, most notably with the creation 
of  the  Banking  Union,  comprising  the  Single  Supervisory  Mechanism,  operational  since  November 
2014,  and  the  Single  Resolution  Board,  operational  since  January  2015.  The  adoption  of  the  SSM 
Regulation has entrusted the ECB with macro-prudential powers at national level. 

The Commission has carried out an evaluation of the functioning and governance of the ESRB. This 
evaluation  was  carried  out  in  compliance  with  the  review  clauses  in  the  legal  acts  on  which  the 
macro-prudential  framework  is  built.  In  this  context,  the  Commission  has  conducted  a  public 
consultation  in  2016  ("2016  public  consultation")  and  organised  a  hearing  with  stakeholders. 
Furthermore, the institutional context has evolved since the establishment of the ESRB and needs to 
be  duly  reflected  in  its  structure.  Finally,  the  Commission  has  prepared  in  2014  a  report  on  the 
mission and organisation of the ESRB1, in which it already identified some shortcomings and offered 
some areas for improvement. ("2014 SWD"). 

The  ESRB  review  should  be  seen  in  context  of  the  ongoing  review  of  the  European  Supervisory 
Agencies (ESAs).2 The ESRB and the ESAs, respectively, have been set  up jointly as the two macro- 

1  

2  

Report  from  the  Commission  to  the  European  Parliament  and  the  Council  on  the  mission  and 
organisation of the European Systemic Risk Board (ESRB) of 8 August 2014 (COM(2014) 508 final). 
European Banking Authority (EBA); European Insurance and Occupational Pensions Authority (EIOPA); 
European Securities and Markets Authority (ESMA). Regulations establishing respectively a European 
Banking  Authority  (Regulation  No  1093/2010)/European  Insurance  and  Occupational  Pensions 

3 

 
 
 
                                                            
and  micro-prudential  pillars  of  the  European  System  of  Financial  Supervision  (ESFS).  Furthermore, 
the ESRB Review also takes place in the context of the ongoing progress towards building a genuine 
Capital Markets Union (CMU), which is expected to lead to a deepening and further integration of EU 
capital markets  and  requires  a  commensurate adjustment  of  the  oversight  framework  for  systemic 
risks. 

This effect analysis focuses on the structure, tasks and functioning of the European Systemic Risk 
Board  (ESRB).  After  identifying  a  number  of  general  and  specific  shortcomings  related  to  the 
governance  framework,  it  sets  measures  to  address  them,  thereby  ensuring  that  the  ESRB  is  in  a 
position to meet its overall objectives. This document is structured as follows. Section 2 describes the 
policy context and the scope of this effect analysis. Section 3 identifies the shortcomings identified in 
the  main  areas  of  the  ESRB  governance.  Section  4  sets  out  the  proposed  changes  to  the  current 
framework. Section 5 describes the overall effect of the proposals. Section 6 suggests how to monitor 
and evaluate the proposals.  

2.  Policy context 

2.1.  Nature and size of the markets concerned 

The  macro-prudential  framework  strives  to  safeguard  financial  stability  by  taking  a  system-wide 
perspective, rather than focussing on individual financial sectors or entities.3 To the extent that this 
perspective  is  conducive  to  more  financial  stability  all  sectors  of  the  real  economy  are  affected, 
directly or indirectly (private as well as public sector, retail as well as wholesale sector, financial as 
well  as  non-financial  sectors,  intermediaries  and  markets  as  well  as  end-users,  etc.).  To  the  extent 
that  macro-prudential  tools  are  generally  imposed  on  financial  institutions,  the  direct  and  more 
immediate impact rests on them, in particular banks. The impact of changes to the functioning and 
institutional  setting  of  the  ESRB  on  the  financial  sector  is  expected  to  be  relatively  limited  and 
indirect (see also section 5).  

The  most  directly  concerned  "actors"  as  regards  the  institutional  setting  of  the  macro-prudential 
framework  are  the  ESRB  itself  and  its  actual  or  potential  members,  i.e;  national  central  banks, 
financial  supervisors  and  regulators,  both  at  national  and  at  EU  level  (see  below),  and  national 
macro-prudential authorities. 

2.2.  Scope of this Effects Analysis 

The  objectives,  governance  structure  (organisation)  and  tasks  of  the  ESRB  are  laid  down  in  two 
ESRB Regulations: 

  Regulation  (EU)  No  1092/2010  of  the  European  Parliament  and  of  the  Council  of  24 
November 2010 on European Union macro-prudential oversight of the financial system and 
establishing a European Systemic Risk Board ("ESRB Regulation"). 

  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 
("ECB/ESRB Regulation"). 

Additional  tasks  have  been  conferred  on  the  ESRB  by  the  CRD  IV/CRR.  These  include  operational 
aspects  related  to  macro-prudential  instruments  (e.g.  developing  guidance  on  the  setting  of  the 

3  

Authority (Regulation No 1094/2010)/European Securities and Markets Authority (Regulation (EU) No 
1095/2010) 
Micro-prudential policy also strives to safeguard financial stability, but by taking an institution-specific 
or instrument-specific perspective. 

4 

 
 
 
                                                                                                                                                                                          
countercyclical  buffer  rates),  or  the  formulation  of  opinions  on  instrument  selection  and  macro-
prudential measures proposed at Member State level.4  

3.  Shortcomings identified 

While  the  evaluation  has  found  that  the  ESRB  is  generally  well-functioning,  some  shortcomings 
have been identified. Given the recent institutional changes related to Banking Union and efforts to 
build CMU, the context in which the ESRB was set up, is different from the  one it now operates in. 
This has implications primarily for the ESRB's composition and also for the way it is organised.  

Figure 1: Issues identified  

Failing  to  correct  these  shortcomings  may  ultimately  limit  the  ESRB's  effectiveness  and,  by 
extension,  have  adverse  consequences  for  financial  stability.  In  particular,  the  ESRB's  ability  to 
identify and address systemic risk at national and EU level, directly or indirectly, may be restrained. 
Furthermore,  it  may  allow  the  inconsistent  application  of  the  macro-prudential  policy  framework 
across Member States. 

Below, we focus on the three identified shortcomings, pertaining to the ESRB's size and composition, 
its autonomy and its internal organisation. 

4  

The ESRB notably has to provide formal opinions as regards the appropriateness and adequacy of the 
use of the Systemic Risk Buffer above a certain threshold (Article 133 CRR) or the national flexibility 
clause under Article 458 CRR. The ESRB also plays an important role within the voluntary reciprocation 
framework, as it may recommend  exposure-based macroprudential policy measures activated in one 
Member State to be reciprocated in the other Member States. The functioning of the ESRB thus has an 
impact on the use of the macro-prudential toolbox and the consistent application of tools across the 
EU. 

5 

General ProblemConsequenceEffectiveness of ESRB in its original form is limitedRisk of limited ability to address systemic risk at national and EU levelRisk of inconsistent application of the macro-prudential policy framework across the EUIssues identifiedESRB composition to be adapted inlight of external developmentsInternal organisation and working structures of ESRB to be adapted inlight of external developmentsESRB autonomy and external representation to be enhanced 
 
 
 
  
 
                                                            
3.1.  Effective size and composition of the ESRB General Board 

3.1.1.  Size of ESRB General Board 

The  ESRB  General  Board  has  a  large  membership,  comprising  a  broad  set  of  institutions  (central 
banks,  supervisors,  supranational  institutions  and  academic  advisors)  represented  at  the  highest 
level. This broad composition confers it a unique and wide range of cross-country and cross-sectorial 
expertise. This has proven to be a major strength, as it has made the ESRB a platform on which to 
foster dialogue, benchmarking and mutual learning, as well as to build trust among institutions. This 
has notably been the case during the incipient phase of the macro-prudential framework. The wide 
composition is justified by and reflects the broad mandate of the ESRB in terms of financial system 
oversight and the systemic nature of the different financial sectors.  

The broad composition is inherently not conducive to swift decision-making, even though the speed 
of decision-making does not appear to have constituted a major impediment to date. The ESRB has 
mainly  used  its  two  (non-binding)  instruments  -  warnings  and  recommendations  (see  below)  –  for 
guidance  and  comparative  analyses,  where  "robust  thinking"  and  in-depth  analysis  have  a  greater 
weight relative to the speed of decision-making. Swift decision-making may however be required in 
certain  case,  for  instance  when  determining  an  emergency  situation  (under  Article  3(2)(e)  of  the 
ESRB  Regulation).  Similarly,  sensitive  issues  may  be  more  appropriately  discussed  in  a  forum  of  a 
smaller size than the General Board. An enhanced Steering Committee could potentially play such a 
role. 

3.1.2.  Composition of ESRB General Board 

The  current  ESRB  membership  reflects  the  institutional  framework  existing  at  the  time  of  the 
adoption  of  the  ESRB  Regulation.  The  institutional  framework  pertaining  directly  or  indirectly  to 
macro-prudential policy, both at national and EU level, has evolved since the set-up of the ESRB. In 
addition, the efforts to build a Capital Markets Union in the EU, are likely to accelerate the shift to 
market-based finance, implying a adjustments in the relative size of the different financial sectors.  

The Banking Union - set up among euro area Member States, but leaving open the option for other 
Member States to opt-in - has led to the establishment of the Single Supervisory Mechanism (SSM) 
and  the  Single  Resolution  Mechanism  (SRM).  Neither  SSM  nor  SRM  are  currently  represented 
formally at the ESRB. Adding the SSM and the SRM to the ESRB would adjust ESRB membership to 
the  current  context.  The  Banking  Union  has  also  led  to  different  supervisory  models  between 
participating  and  non-participating  countries.  The  former  are  effectively  subject  to  the  same 
supervisory  mechanism,  which  has  also  both  substantive  and  procedural  implications  as  regards 
macro-prudential policy, given that the ECB can top up macro-prudential measures (under Article 5 
of the SSM Regulation). This may create a duplication of work between the ECB/SSM and the ESRB 
and hence calls for a smooth coordination of macro-prudential policies. Furthermore, it strengthens 
the  need  for  the  ESRB  to  focus  on  spill-overs  between  Banking  Union  and  non-Banking  Union 
countries. A related issue concerns the fact that the creation of the SSM means that the ECB has also 
become  a  competent  authority  at  the  Banking  Union  level  given  its  new  macro-prudential  tasks 
provided  in  the  SSM  regulation.  However,  the  ECB  in  its  supervisory  tasks  is  not  included  as  a 
potential  addressee  of  Recommendations  by  the  ESRB,  while  national  authorities  are  specifically 
mentioned.  

6 

 
 
 
Member  State  representation  in  the  ESRB  is  currently  limited  to  NCBs  and  national  supervisory 
authorities. However, national macro-prudential authorities (MPA), responsible for the oversight of 
the  financial  system,  have  been  established  following  the  ESRB  Recommendation  on  the  macro-
prudential mandate of national authorities (ESRB/2011/3). The latter has called upon Member States 
to  designate  an  authority  entrusted  with  the  conduct  of  macro-prudential  policy,  with  the  aim  of 
safeguarding the stability of the financial system as a whole. Their mandate essentially is a national 
mirror image of the ESRB's mandate, suggesting that these authorities are the natural counterparts 
to  the  ESRB  at  Member  State  level.  National  MPAs  are  however  not  formally  represented  at  the 
General Board. They are represented implicitly only, given the strong link or congruence of NCB and 
MPA in many Member States. A key complicating factor is that they are not established in EU Law. 

Another  issue  concerns  the  sectorial  balance  on  the  ESRB  General  Board,  which  is  all  the  more 
important  in  light  of  the  CMU  project.  Among  the  voting  members,  there  is  a  clear  dominance  of 
central  banks,  which  is  justified  by  their  expertise  in  financial  stability.  The  simultaneous 
responsibility  of  many  NCBs,  and  of  the  ECB,  for  banking  supervision  may  however  contribute  to 
conflicting  objectives.  Furthermore,  it  may  contribute  to  an  excessive  perspective  on  the  banking 
sector  within  the  ESRB,  which  may  be  corroborated  by  the  fact  that  the  current  macro-prudential 
toolbox  almost  exclusively  focusses  on  the  banking  sector.  Given  advances  in  CMU,  it  needs  to  be 
ensured that non-bank supervisors are adequately represented in the ESRB structures, in particular 
at the technical level, strengthening the ESRB's capacity to identify systemic risks emanating from the 
non-banking sector. 

3.2.  ESRB autonomy and external representation 

A  number  of  factors  limit  the  ESRB's  autonomy  and  external  representation.  This  is  partly 
attributable  to  the  current  legal  uncertainty  regarding  the  appointment  of  the  ESRB  chair  and  the 
close  link  between  the  ECB  and  the  ESRB.  This  close  link  is  foreseen  by  the  ESRB  Regulations  and 
justified  by  the  ECB's  expertise  on  financial  stability  issues.  However,  it  may  negatively  affect  the 
public perception of the ESRB as an autonomous body. 

3.2.1.  ESRB Chair 

The Chair presides at the meetings of the General Board and the Steering Committee and represents 
the ESRB externally, notably through regular public hearings at the European Parliament (Committee 
on  Economic  and  Monetary  Affairs  of  the  European  Parliament),  ensuring  the  accountability  and 
transparency  of  the  ESRB.  The  Chair  may  be  replaced  by  one  of  the  Vice-Chairs.  The  ESRB  Chair  is 
however seen first and foremost (if not exclusively) as the ECB President which is exemplified by the 
number of questions during those hearings which are addressing the ECB's competences rather than 
the ESRB's. As a result, the visibility of the ESRB work is somewhat more limited. 

The ESRB Regulation stipulates that the ESRB is chaired by the President of the ECB for a term of five 
years  following  its  entry  into  force,  i.e.  until  15  December  2015.  Thereafter,  the  Chair  of  the  ESRB 
shall be designated – or elected - in accordance with modalities to be determined on the basis of the 
review provided for in the Regulation (Review clause). Despite the five year term having elapsed, no 
new designation modalities have been put in place yet. Until the new permanent scheme is in place, 
the President of the ECB continues to chair the ESRB. 

7 

 
 
 
The lack of legal clarity around the ESRB Chair eventually risks undermining the authority of the ESRB 
and may prevent it from strengthening its own profile. 

3.2.2.  ESRB Vice-Chairs 

The ESRB has two Vice-Chairs, who may replace the Chair. The first Vice-Chair is elected by and from 
the members of the General Council of the ECB for a term of 5 years (with the possibility of one re-
election),  with  regard  to  the  need  for  a  balanced  representation  of  Member  States  overall  and 
between those whose currency is the euro and those whose currency is not the euro. Since the set-
up of the ESRB, the first Vice-Chair has always been an NCB governor from a non-euro area Member 
State  (UK). The second Vice-Chair  is  the Chair  of  the Joint  Committee of  the  European  Supervisory 
Agencies, i.e. the chair of EBA, EIOPA or ESMA.  

The  Banking  Union,  via  the  SSM  Regulation,  has  introduced  different  supervisory  models  between 
those Member States participating in the Banking Union and those that do not participate. This has 
also affected the conduct of macro-prudential policy, as national macro-prudential measures need to 
be notified to the ECB, which may decide to strengthen them (Article 5 of the SSM Regulation). This 
differential  treatment  of  Member  States  participating  in  the  Banking  Union  and  the  others  is 
implicitly  acknowledged  by  the earmarked position  of  first Vice  Chair  for  a  non-euro  area  Member 
State. A clear reference to the Banking Union (rather than the euro area) is missing. 

3.2.3.  External representation of the ESRB5 

The  ESRB  is  represented  externally  by  the  ESRB  Chair  and  thus  de  facto  by  the  ECB  President.  The 
lack  of  an  exclusive  identification  figure  may  partly  blur  the  distinction  between  the  ESRB  and  the 
ECB  and  may  weigh  on  the  perceived  independence  of  the  ESRB.  While  the  ESRB  has  significantly 
benefited from the authority and credibility of being chaired by the ECB President, the double role of 
the latter however implies constraints in terms of availability and day-to-day dedication to the ESRB. 
The same constraints apply to the Vice Chairs, whose availability is also limited, given their respective 
primary functions. Currently no formal external representation powers are conferred to the head of 
the ESRB Secretariat and the formal tasks of the head of the ESRB Secretariat are limited, which limit 
the ESRB's autonomy and visibility. 

3.3.  Internal organisation and working structures of the ESRB 

The evaluation also made the case for enhancing the internal organisation and working structures 
of the ESRB, notably in the light of the changing regulatory and economic context. The large size of 
the  ESRB  may  for  instance  not  be  conducive  to  swift  decision-making  and  may  deter  confidential 
discussions. A stronger core structure could help strenghten the ESRB's effectiveness by speeding up 
decision-making  when  necessary  and  providing  an  additional  forum  for  EU  policy  discussions, 
without foregoing the wide expertise that is represented on the General Board and which constitutes 
the ESRB's strength. 

A forum with an exclusive European perspective on systemic risks is currently missing in the ESRB. 
By fostering financial integration, the Banking Union and Capital Markets Union imply that some risks 

5  

Legal  basis:  Article  3  -  Council  Regulation  1096/2010  conferring  specific  tasks  upon  the  European 
Central Bank concerning the functioning of the ESRB 

8 

 
 
 
                                                            
are  more  likely  to  a  rise  at  the  supra-national  level  and  thus  require  a  dedicated  macro-prudential 
forum  that  has  a  congruent  perspective.  While  it  is  recognised  that  financial  stability  risks  mainly 
arise at national level, Member State perspectives dominate on the General Board. 

3.3.1.  Steering Committee6 

The  Steering  Committee  assists  the  ESRB  decision-making  process.  It  prepares  the  meetings  of  the 
General Board and monitors the progress of the ESRB’s ongoing work. It is composed of 14 members: 
the Chair and first Vice-Chair of the ESRB, the Vice-President of the ECB, four other members of the 
General  Board  who  are  also  members  of  the  General  Council  of  the  ECB,  a  Member  of  the 
Commission, the Chairpersons of the ESAs, the President of the EFC and the respective Chairs of the 
Advisory Scientific Committee (ASC) and Advisory Technical Committee (ATC). It is convened at least 
quarterly before the General Board meetings, typically by telephone conference. 

The current composition of the Steering Committee does not take account of the recent evolution of 
the EU financial supervisory architecture, i.e. SSM and SRB are not formally represented . 

A  few  stakeholders  consider  that  the  Steering  Committee's  current  responsibility  is  confined  to 
preparing  the  meetings  of  the  General  Board,  while  its  role  in  terms  of  priority  setting  and  work 
programme determination could be enhanced. In particular, the Steering Committee could act as a 
forum  to  discuss  sensitive  issues  and  ensure  swift  decision-making,  or  constitute  a  high-level 
coordination platform among EU institutions on financial stability matters.  

3.3.2.  Advisory Technical Committee7 

The  composition  of  the  Advisory  Technical  Committee  mirrors  that  of  the  General  Board  and  is 
subject to the issues identified for the former.  

3.3.3.  ESRB Secretariat 

The ESRB's day-to-day work is managed by the ESRB Secretariat, which prepares the meetings of the 
ESRB and supports the work of the General Board, the Steering Committee, the Advisory Technical 
Committee  and  the  Advisory  Scientific  Committee  of  the  ESRB.  The  Secretariat  further  collects  all 
information necessary for the achievement of the tasks of the ESRB. The head of the ESRB Secretariat 
is appointed by the ECB, in consultation with the General Board.  

According to the evaluation, the ESRB Secretariat has performed well overall, in spite of its relatively 
small size and high staff turnover. It has notably achieved this by leveraging  resources of the ESRB 
member  institutions  and  relying  on  its  cooperation  with  the  ECB.  The  generally  positive  broad 
assessment  of  its  functioning  is  reflected  in  the  ESRB's  formal  outputs  and  in  the  support  that  it 
receives  from  its  member  organisations.  Still,  it  is  considered  that  its  role  could  be  enhanced  by 
raising  the  profile  of  the  head  of  Secretariat.  Furthermore,  ESRB  staff  could  be  given  a  more  high 
profile role by chairing ESRB working groups more often. 

6  
7  

Legal basis: Article 11 (Steering Committee) 
Legal basis: Article 13 (Advisory Technical Committee) 

9 

 
 
 
                                                            
4.  Proposed changes to the current framework 

The  evaluation  of  the  ESRB  has  found  that  the  ESRB  is  generally  well-functioning,  notwithstanding 
some room for targeted improvements. The issues to be addressed are relatively minor and do not 
call for major policy changes or a complete overhaul of its structure. 

It has also been considered whether a more radical set of changes could be warranted. Indeed, the 
identified shortcomings have pointed to the need for an enhancement of the ESRB's autonomy and 
external  visibility.  This  could  also  be  achieved  by  setting  up  the  ESRB  as  an  independent  macro-
prudential authority or by hosting it in a dedicated agency. Different governance models had already 
been examined prior to the setting up of the ESRB. In particular, it had been considered whether the 
macro-prudential authority should rely on an existing structure (Economic and Financial Committee, 
ECB,  ESAs)  or  be  established  as  a  new  body.  The  model  of  a  high-level  board  with  a  broad 
composition,  comprising  central  banks,  micro-prudential  supervisors  and  the  Commission,  was 
retained  at  the  time  (Impact  Assessment  accompanying  the  Commission  Communication  on 
European  financial  supervision,  May  2009).  Regarding  the  hosting  (and  funding)  of  the  ESRB 
Secretariat,  different  hosting  "models"  were  also  considered  in  the  past  (September  2009  Impact 
Assessment8),  including  hosting  by  the  ECB  or  the  Commission,  or  setting  up  a  virtual  network  of 
central  banks.  The  ECB  model  was  retained  as  the  most  effective  and  efficient  with  regard  to  the 
ECB's specific functions fulfilled within the ESCB, including expertise, access to data and its existing 
connections to NCBs and EU supervisors. 

In  the  light  of  the  overall  favourable  evaluation  of  the  ESRB's  contribution  to  the  EU  macro-
prudential framework and given  the  positive  assessment  regarding the  ECB  support  to  the ESRB,  a 
change  in  its  institutional  structure  or  a  relocation  of  its  Secretariat  away  from  the  ECB  would  go 
hand  in  hand  with  a  substantial  loss  in  financial  stability  expertise,  while  such  expertise  is  a  pre-
requisite  for  the  fulfilment  of  its  tasks.  A  more  radical  change  to  the  ESRB  would  thus  be  both 
disproportionate  and  yield  a  less  effective  outcome,  and  is  therefore  discarded.  A  combination  of 
targeted  changes  appears  sufficient  and  more  suited  to  enhance  the  ESRB's  identity,  without 
jeopardising  the  substantive  input  provided  by  ESRB  members  and  the  ECB,  in  particular.The 
proposed changes to the ESRB Regulations primarily aim to enhance the effectiveness of the ESRB, 
which  should  improve,  albeit  marginally,  the  systemic  risk  monitoring  capacity  at  national  and  EU 
level and improve the ability to prevent such risks from materialising. This is also expected to lead to 
a  more  consistent  and  transparent  application  of  macro-prudential  policies  across  the  EU.  In 
addition,  a  more  effective  functioning  will  enable  the  ESRB  to  play  a  key  role  in  the  further 
development  of  the  CMU.  More  specifically,  it  will  adapt  the  composition  of  the  ESRB  in  light  of 
external  developments;  enhance  the  ESRB's  autonomy  and  external  visibility;  adapt  the  ESRB's 
internal organisation and working structures. 

4.1.  Effective size and composition of the ESRB General Board 

In  the  light  of  the  recent  developments  of  the  EU  financial  supervisory  architecture,  the  current 
composition of the ESRB needs to be updated. In particular, it is proposed to formally integrate the 
two first pillars of the Banking Union in the ESRB in order to strengthen its representativeness and 
support the coordination of macro-prudential policies across the EU. The SSM and SRM, respectively, 
should be added as voting members on the ESRB General Board and corresponding changes would 
be  made  to  ESRB  committees  (Steering  Committee  and  Advisory  Technical  Committee).  Their 
addition is not only justified for institutional reasons, but also in the light of their direct contribution 
to  financial  stability.  Broadening  participation  in  this  way  strengthens  the  ESRB's  capacity  and 

8 SEC(2009) 1234 

10 

 
 
 
                                                            
authority in making appropriate use of its tools.9 In addition, the ECB as a competent or designated 
authority  in  Member  States  participating  in  the  SSM,  for  the  tasks  conferred  on  it  by  the  SSM 
Regulation, should be added as a potential addressee of ESRB warnings and recommendations. This 
would correct for the current asymmetry whereby national authorities are specifically included but 
not  the  ECB  and  would  therefore  recognise  the  creation  of  Banking  Union  in  the  macro-prudential 
institutional set-up.  

The possibility of providing an explicit role to MPAs in the General Board has also  been considered. 
Formally opening the General Board membership would raise their profile and be coherent with the 
EU macro-prudential architecture, as Member States' institutions with an exclusive financial stability 
mandate would be represented on the General Board. It should however be noted that the powers 
of these recently set up authorities vary considerably. Some MPAs are at the same time designated 
to apply macro-prudential tools, while others are primarily consultative bodies. In most countries the 
MPAs' links to the respective NCB are very strong, either because they coincide (in cases where the 
MPA is a single institution) or because the NCB is on the MPA's board. Against that background, the 
effective impact on representation would thus likely be limited. While the case for a replacement of 
NCBs by MPAs appears premature and is thus not proposed, future reviews should reconsider that 
possibility. Finally, it should also be noted that setting up separate MPAs is not explicitly required in 
EU legislation, and the model adopted varies across Member States. 

A  reduction  of  the  size  of  the  General  Board  has  also  been  contemplated,  given  the  trade-off 
between efficient decision-making and inclusivity. A reduction of the General Board's size would also 
sacrifice its major strength, namely its broad and high-level membership. Overall it is considered that 
the advantages of the large membership can be preserved, while the inherent disadvantages can be 
reduced by strengthening the ESRB's core around its Steering Committee and Secretariat. 

4.2.  ESRB autonomy and external representation 

The proposed changes to the legislation aim to ensure that the ESRB is perceived as an autonomous 
body  that  is  complementary  to  the  individual  institutions  making  it  up.  At  the  same  time  it  is 
necessary to continue to endow it with a strong and credible leadership.  

4.2.1.  ESRB Chair 

The current legal uncertainty concerning the ESRB Chair (see above) needs to be addressed swiftly, 
as it may unnecessarily weaken the authority of the ESRB. 

It is proposed to designate the ECB President as ex officio ESRB Chair and thereby address the lack of 
legal clarity regarding the Chair. The arrangement that has existed formally during the first five years 
of  the  ESRB's  existence  and  was  continued  informally  thereafter,  would  thus  become  permanent. 
The  evaluation  has  concluded  that  this  set-up  has  delivered  good  results  overall  since  the  ESRB's 
creation. Maintaining the ECB President as ESRB Chair would uphold the strong link to the ECB and its 
technical expertise in assessing risks to financial stability, access to data, etc. The reputation of the 

9  

At this stage it should be reminded that the ESRB can affect macro-prudential policy directly by issuing 
warnings  or  recommendations.  Given  the  non-binding  character  of  the  two  instruments,  the  ESRB 
needs  to  rely  on  its  intrinsic  authority,  which  results  largely  from  the  perceived  independence,  the 
reputation of the ESRB's members and of its leadership. 

11 

 
 
 
                                                            
ECB and its President would confer additional credibility to the ESRB. Given the fact that the ESRB's 
powers are essentially non-binding, and hence rely to a large extent on peer pressure and conviction, 
the ECB President's authority confers substantial weight to the ESRB's work.  

Some stakeholders have voiced concerns regarding the designation of the ECB President for the ESRB 
Chair,  pointing  to  conflicts  of  interest,  which  may  arise  between  the  objectives  of  the  ESRB  and 
actions by the ECB pertaining to both monetary policy and banking supervision. Furthermore, some 
stakeholders  have  pointed  out  the  limited  availability  of  the  ECB  President,  given  the  constraints 
imposed by his original functions. While these concerns are legitimate to some extent, it should be 
noted  that  the  weaknesses  regarding  the  autonomy  and  external  perception  of  the  ESRB  do  not 
result exclusively from the choice of its Chair, but also more broadly reflect other considerations such 
as the ESRB's composition, its internal structure and the day-to-day management of the ESRB and its 
Secretariat, which are addressed below. In any event, the decision to appoint the ECB President as 
Chair should be reviewed periodically. 

Alternative designation or election mechanisms of the ESRB Chair have been considered, as foreseen 
in the  Review  clause  of  the ESRB  Regulation. Different approaches  could be  pursued  regarding  the 
designation  mechanisms  (e.g.  election  by  the  General  Board,  Council  appointment)  and  the  Chair 
(full-time  independent  or  a  member  of  the  General  Board).  An  alternative  appointment  procedure 
may  possibly  enhance  the  ESRB's  autonomy  vis-à-vis  the  ECB,  but  would  likely  give  rise  to  other 
potential  conflicts  of  interest.  The  choice  of  a  full-time  independent  candidate  could  indeed 
strengthen  the  ESRB's  visibility  by  giving  it  an  exclusive  identification  figure.  However,  the  main 
advantages of the current set-up - benefiting from the ECB President's reputation and credibility and 
relying on synergies with the ECB – would largely be sacrificed.  

4.2.2.  ESRB Vice-Chairs 

Regarding  the  ESRB  Vice-Chairs,  the  current  situation  of  two  Vice-Chairs  (a  member  of  the  ECB 
General Council as first Vice-Chair and the Chair of the Joint Committee of the ESAs as second Vice-
Chair)  has  functioned  well.  In  practice,  the  position  of  first  Vice-Chair  has  so  far  been  given  to  a 
General Council member from a non-euro area NCBs. With the setting up of the Banking Union, the 
current balance should not be changed but reference could be made to the balance between Banking 
Union  and  non-Banking  Union  Member  States  rather  than  between  euro  area  and  non-euro  area 
Member States. 

4.2.3.  Enhancing role of head of the ESRB Secretariat 

The lack of an exclusive identification figure of the ESRB has been identified as a shortcoming in the 
current  set-up.  It  is  suggested  to  address  this  by  enhancing  the  role  of  the  head  of  the  ESRB 
Secretariat. The head of the ESRB Secretariat could notably take up a stronger external role, which 
would raise the external visibility of the ESRB, representing it in external fora, such as the EFC. 

The head of  the ESRB Secretariat would be in charge of the day-to-day activity of the ESRB and its 
Secretariat. It is also expected that the ESRB Secretariat ensures an enhanced coordination role with 
regard to the notification of measures that national authorities intend to adopt, hereby contributing 
to streamline the notification processes and making it a central "hub" for the coordination  of such 
processes. A similar role could be played with regard to requests by individual designated authorities 

12 

 
 
 
for  the  reciprocation  of  macro-prudential  measures  adopted  by  them.  Voluntary  reciprocation  by 
other Member States takes the form of an ESRB Recommendation and is hence subject to a lengthy 
administrative  process.  Currently,  there  is  scope  for  enhancing  the  efficiency  of  the  ESRB  in  these 
processes. . 

4.3.  Internal organisation and working structures of the ESRB 

4.3.1.  Steering Committee 

The  Steering  Committee  assists  the  ESRB  decision-making  process.  It  prepares  the  meetings  of  the 
General Board and monitors the progress of the ESRB’s ongoing work. It is composed of 14 members: 
the Chair and first Vice-Chair of the ESRB, the Vice-President of the ECB, four other members of the 
General  Board  who  are  also  members  of  the  General  Council  of  the  ECB,  a  Member  of  the 
Commission, the Chairpersons of the ESAs, the President of the EFC and the respective Chairs of the 
Advisory Scientific Committee (ASC) and Advisory Technical Committee (ATC). It is convened at least 
quarterly before the General Board meetings, typically by telephone conference. 

The current composition of the Steering Committee does not take account of the recent evolution of 
the EU financial supervisory architecture, i.e. SSM and SRB are not represented formally. 

A  few  stakeholders  consider  that  the  Steering  Committee's  current  responsibility  is  confined  to 
preparing  the  meetings  of  the  General  Board,  while  its  role  in  terms  of  priority  setting  and  work 
programme determination could be enhanced. In particular, the Steering Committee could act as a 
forum  to  discuss  sensitive  issues  and  ensure  swift  decision-making,  or  constitute  a  high-level 
coordination platform among EU institutions on financial stability matters.  

4.3.2.  Advisory Technical Committee 

Changes to the ESRB General Board would also be reflected in the ATC structure. 

4.3.3.  ESRB Secretariat 

In addition to strengthening the role of the head of Secretariat, the role of the ESRB Secretariat itself 
should be enhanced by encouraging ESRB Secretariat staff to chair ESRB working groups. This would 
better ensure that a European perspective is taken on systemic risk issues and reduce the likelihood 
that work is disproportionately influenced by particular national experiences or situations. 

5.  Overall effect  

The main purpose of the proposals is to fine-tune a system that is considered to function well overall, 
so  the  overall  effect  will  be  limited.  To  a  large  extent  the  proposals  reflect  external  developments 
rather than problems that have emerged withing the ESRB over the past years. 

Compared  to  the  current  situation,  the  proposals  would raise the ESRB's  effectiveness  by  adapting 
the  composition  of  the  ESRB,  strengthening  its  autonomy  and  enhancing  its  internal  organisation. 
This  would  notably  occur  by  mandating  the  ECB  President  as  ex  officio  Chair  of  the  ESRB  and 
enhancing the role of the ESRB head of Secretariat.  

Overall,  these  changes  would  allow  the  ESRB  to  perform  its  tasks  better,  notably  analysing, 
identifying and prioritising systemic risk and applying its tools, i.e. Recommendations and Warnings. 

13 

 
 
 
A more effective ESRB would also have positive implications for the converging and consistent use of 
macro-prudential tools in the EU. 

To the extent that the pursuit of sound macro-prudential policy in the EU – on which the ESRB has 
an influence – contributes to financial stability and hence to a more sustainable growth model, all 
sectors  and  households  are  likely  to  be  affected,  albeit  indirectly.  A  sound  application  of  macro-
prudential policies will support the competitiveness of firms by contributing to a less risky financial 
environment with a reduced likelihood of shocks to the financial system. Financial crises take heavy 
tolls on jobs, growth and household wealth. A sound macro-prudential policy should both reduce the 
likelihood of such crisis and mitigate their adverse impact if they occur. 

6.  Monitoring and Evaluation 

A  number  of  monitoring  indicators  can  be  envisaged  to  monitor  and  evaluate  the  progress  from 
the proposed changes. However, identifying a causal effect between the proposed changes and the 
ultimate  objective  of  safeguarding  financial  stability  is  inherently  challenging.  Still  a  number  of 
intermediate indicators can be tracked: 

  Systemic Risk indicators: while it is impossible to isolate the effect of changes to the macro-
prudential framework, systemic risk should be lower than in a counterfactual scenario. 

  ESRB activity and issuance of warnings and recommendations: a more effective and efficient 
ESRB  could  a  priori  be  expected  to  use  its  (soft)  powers  more  readily.  However,  three 
imporant  caveats  need  to  be  mentioned:  first,  the  maturing  of  the  macro-prudential 
framework  may  reduce  the  need  for  guidance  that  has  been  provided  in  the  form  of 
Recommendations. Secondly, both Warnings and Recommendations need to be well justified 
–  a  mere  proliferation  of  these  instruments  would  also  increase  the  probabiliy  of  false 
negatives,  which  in  turn  would  undermine  the  ESRB's  credibility  and  hence  effectiveness. 
Finally,  an  enhanced  role  of  the  Head  of  the  ESRB  Secretariat,  may  more  readily  resort  to 
informal communication with potential addressees of Warnings or Recommendations, rather 
than to formal and official channels. This would translate in a lesser use of formal powers. 

  Given  the  dynamic  nature  of  systemic  risk,  regular  reviews  of  the  functioning  of  the  ESRB 

should be envisaged. 

14