REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the macroprudential review for credit institutions, the systemic risks relating to Non-Bank Financial Intermediaries (NBFIs) and their interconnectedness with credit institutions, under Article 513 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012
Date: 2024-01-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU banking union, banking policy, banking supervision, financial control, financial institution, financial legislation, financial requirements, financial risk, financial stability, market supervision

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.1.2024  COM(2024) 21 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the macroprudential review for credit institutions, the systemic risks relating to Non-Bank Financial Intermediaries (NBFIs) and their interconnectedness with credit institutions, under Article 513 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012   
 
 
As required by Article 513 of Regulation (EU) No 575/2013 (Capital Requirements Regulation, CRR), 
and after consulting the European Systemic Risk Board and the European Banking Authority, this report 
reviews the EU macroprudential framework set out in the CRR and Directive 2013/36/EU (CRD). 
The review was originally due by June 2022 and, if appropriate, followed by a legislative proposal to 
the European Parliament and to the Council by December 2022.1 The Commission decided to postpone 
the review in order to better assess the effects of the pandemic (and the post-pandemic) macroeconomic 
conditions,  the  growth  of  Non-Bank  Financial  Intermediation  (NBFI)  and  the  US  banking  crisis  of 
March 2023.  

The report draws upon numerous studies by EU and international bodies as well as on a comprehensive 
public consultation process conducted by the Commission, including a targeted Call for Advice (CfA) 
to the European Banking Authority, the European Central Bank and the European Systemic Risk Board, 
that were completed in 2021.2 Furthermore, numerous bilateral discussions have been held between the 
Commission  services  and  stakeholders,  including  at  the  Commission’s  Expert  Group  on  Banking, 
Payments and Insurance.  

The 2008-2009 global financial crisis exposed the vulnerabilities in the banking sector worldwide, as 
many  financial  institutions  were  overleveraged,  had  large  exposures  towards  risky  assets  and 
insufficient sources of stable funding. In the run up to the crisis, it was difficult to assess exposures and 
potential  spillover  effects,  partly  due  to  limited  transparency  of  the  growing  leverage  and 
interconnection among financial institutions. Credit risk, funding and market liquidity risks were largely 
underestimated  and  the  regulatory  framework  had  limited  mechanisms  to  address  incentives  of 
systemically important institutions. As a result, supervisory and regulatory frameworks that focused 
mainly on ensuring the stability of financial institutions on a standalone basis proved to be inadequate 
in mitigating the challenges to financial stability triggered by systemic shocks. Vulnerabilities can build 
up across the financial system, even if financial institutions are resilient individually.3 Consequently, it 
became  necessary  to  develop  additional  policy  tools,  including  at  macroprudential  level,  to  limit 
excessive  credit  growth  and  to  strengthen  the  overall  resilience  of  the  financial  sector  to  withstand 
systemic shocks. 

The aim of macroprudential policies is to maintain financial stability by increasing the resilience of the 
financial  system  and  limiting  the  build-up  of  vulnerabilities,  in  this  way  mitigating  (structural  and 
cyclical)  systemic  risks  and  ensuring  that  financial  services  can  continue  to  support  the  economy. 
Systemic  risk  can  materialise  in  various  forms.  For  instance,  it  can  stem  from  large  and  complex 
banking groups, excessive credit growth, leverage amplifying the credit cycle in housing markets and 
structural  banking  sector  vulnerabilities  (e.g.,  having  a  highly  concentrated  or  large  banking  sector 
relative to  GDP).  By mitigating  systemic risks,  macroprudential  policies  ultimately  aim  to  limit  the 
frequency  and  severity  of  financial  crises.  By  complementing  micro-prudential  supervision, 
macroprudential  policies  smoothen  the  financial  cycle,  limit  contagion  effects  and  create  the  right 
incentives for market participants. In this way, the banking sector is sufficiently resilient and it does not 
curtail the supply of credit to households and firms in a crisis, which amplifies negative shocks to the 
economy and can deepen or prolong an economic downturn.  

1 The report was postponed allowing consideration of the COVID-19 crisis and its impact on the financial system.  
2 See European Commission (2021), Targeted consultation on improving the EU’s macroprudential framework 
for the banking sector, November 2021; European Commission (2022),  Summary of responses to the targeted 
consultation  June  2022;  European  Commission  (2021),  Call  for  Advice  on  the  review  of  the  macroprudential 
framework for the banking sector, September 2021.  
3  See, 
https://www.imf.org/external/np/pp/eng/2011/031411.pdf. 

“Macroprudential  Policy:  An  Organizing  Framework”, 

available 

(2011), 

IMF 

at 

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The macroprudential toolkit includes requirements or procedures designed to minimise the negative 
impact of systemic events4 and to protect the financial system as a whole5.  Microprudential tools may 
only indirectly mitigate systemic risk by tackling entity or transaction-level risks6. Macroprudential 
tools typically take the form of pre-emptive measures (i.e., ex ante measures activated before systemic 
risk  materialises,  such  as  structural  leverage  limits  or  systemic  risk  capital  buffers)  and  ex-post 
measures (i.e., measures activated after a systemic risk materialises, such as suspending investor rights 
to redeem units of investment funds). 

1.  A revised macroprudential framework for banks 

In the aftermath of the global financial crisis, actions taken at international and EU levels to strengthen 
the  microprudential  framework  for  banks  and  develop  a  macroprudential  policy  framework  have 
resulted in a comprehensive reform agenda. The Basel Committee on Banking Supervision (BCBS) 
developed  the  Basel  III  framework,  which  raised  the  quality  of  capital,  brought  in  new  capital  and 
liquidity  buffers  and  leverage  ratio  limits  for  banks,  improved  risk  management,  governance  and 
transparency and created a macroprudential policy framework.  

At EU level, the De Larosière Report7 recommended that supervisory and regulatory frameworks should 
no longer focus only on supervising individual financial institutions,8 but also on the stability of the 
entire financial system. The Report noted that ‘The objective of macro-prudential supervision is to limit 
the distress of the financial system to protect the overall economy from significant losses in real output 
[…]. Macro-prudential analysis […] must pay particular attention to common or correlated shocks and 
to shocks to those parts of the financial system that trigger contagious knock-on or feedback effects. 
Macro-prudential supervision cannot be meaningful unless it can somehow impact on supervision at 
the  micro-level;  whilst  micro-prudential  supervision  cannot  effectively  safeguard  financial  stability 
without adequately taking account of macro-level developments.’ 

The EU has taken significant steps to strengthen its macroprudential framework by implementing the 
reforms recommended in the De Larosière Report and the standards developed at international level. 
For example, it has adopted measures to reduce the pro-cyclical effects of Basel II measures and created 
the ESRB and the European Supervisory Authorities (ESAs) to ensure proper monitoring of financial 
stability risks across the whole financial system, along with other risks. 

In 2014, a macroprudential toolkit, which builds on the international standards developed by the 
BCBS,  became  applicable  to  credit  institutions  (henceforth  ‘banks’).  This  toolkit,  set  out  in  the 
Capital Requirements Directive and Regulation (CRD/CRR) was only marginally revised in 2019.9 To 
safeguard financial stability, the CRD and CRR acknowledge that macroprudential policy is a necessary 
complement  to  microprudential  supervision.  As  systemic  risks  may  differ  across  Member  States, 

4 A ‘systemic event’ is a large negative event for the financial system, such as a systemic liquidity crisis like the 
COVID crisis or a major credit event like the bankruptcy of Lehman Brothers, or a series of smaller event (the 
failure of one or few medium-sized financial institutions, like the events triggered by the bankruptcy of Silicon 
Valley  Bank)  that  uncover  the  build-up  of  a  large  financial  imbalance  (in  the  form  of  large  exposures  or 
interconnectedness among market operators).  
5 The high level group on financial supervision in the EU. De Larosière report (europa.eu).  
6 For instance, leverage limits are prudential measures that have a microprudential nature when they are designed 
and implemented to face an idiosyncratic entity or transaction-level risk, but they are macroprudential tools when 
they are designed and implemented at sector-wide level, disregarding the individual business model or activity. 
This is the case of structural limits for loan-originating funds, under the recently agreed AIFMD/UCITS review, 
which qualify as macroprudential tool.  
7 The high-level group on financial supervision in the EU. De Larosière report (europa.eu).   
8 The term “financial institutions” refers to both banks (i.e., credit institutions) and to non-bank intermediaries.  
9 As contained in Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013, 
as amended by Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 (Capital 
Requirements Regulation – CRR) as regards macroprudential provisions; Directive 2013/36/EU of the European 
Parliament  and  of  the  Council  of  26  June  2013,  as  amended  by  Directive  (EU)  2019/878  of  the  European 
Parliament  and  of  the  Council  of  20  May  2019  (Capital  Requirements  Directive  -  CRD)  as  regards 
macroprudential  provisions.  The  Banking  Package  of  2019  introduced  some  targeted  changes  to  the 
macroprudential provisions, which became applicable as of 29 December 2020.  

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national authorities should be able to factor in the specific needs of their banking sectors. Although 
uniform microprudential rules (‘the single rulebook’) were introduced for banks, national authorities 
were granted a leading role and some degree of flexibility in the conduct of macroprudential policies, 
reflecting the different sources and complex nature of systemic risk. 

The  EU  macroprudential  toolkit  for  banks  includes  several  instruments  that  aim  to  tackle 
multiple aspects of systemic risk. The CRD introduced a macroprudential capital buffer regime (i.e., 
five buffers forming together the combined buffer requirement), allowing banks to adapt their capital 
position to the specific macroeconomic and financial sector conditions (see Appendix 1). For instance, 
they should build up the counter-cyclical capital buffer when credit growth is associated with a build-
up of cyclical systemic risk, while the buffers for other important institutions and for overall systemic 
risks can be used to mitigate structural systemic risks to financial stability. They should then use capital 
when necessary to absorb losses and meet credit demand during periods of economic downturn and 
crises. Capital buffer usability and releasability need to work effectively, enabling capital to flow 
back  into  the  economy  as  macroeconomic  conditions  improve  and  without  being  slowed  down  by 
prepositioning for reputational reasons. The post-financial crisis regulatory reforms have strengthened 
the resilience of the EU banking sector and its capacity to  withstand systemic shocks. Nevertheless, 
more recent crisis episodes, in particular the COVID-19 pandemic, have shown that the availability of 
releasable capital buffers in times of crisis to absorb losses remains a pressing concern (see Appendix 
2). In the event of a significant shock, a reduction in buffer requirements could alleviate problems and 
reduce the incentives of banks to deleverage and de-risk. Economic outcomes can be considerably better 
when capital buffers are released or used to maintain lending to the economy. 

The CRR also includes  discretionary macroprudential tools  that  aim  to tackle specific systemic 
risks, such as those stemming from the real-estate sector. These risks can be mitigated by increasing 
risk weights and exposure weighted average Loss Given Default (LGD) parameters of internal rating-
based models. In addition to the conventional systemic risks stemming, for instance, from real-estate 
markets, the banking sector has been increasingly exposed to new risks, such as climate change-
related and transition risks, as well as cyber-risks. Prudential regulators and supervisors have yet to 
find an adequate manner to address these risks, which can become systemic if not addressed proactively. 
As  financial  systems  become  more  interconnected,  complex,  but  also  more  prone  to  shocks  and 
uncertainty triggered by geopolitical developments and other factors, maintaining sufficient policy tools 
and  flexibility to support the  flow  of  credit to  the  economy  is  warranted.  Striking  the  right  balance 
between, on the one hand, macroprudential tools and preventive measures, and crisis management tools, 
on  the  other  hand,  requires  evaluation  and  thorough  assessment to  avoid  any  undue  impacts  on  the 
effectiveness of the latter measures and tools. Therefore, any potential reform of macroprudential tools 
should take due consideration of its impact on prudential and resolution frameworks and should not 
give  rise  to  an  increase  in  the  overall  level  of  capital  or  minimum  requirements  on  own  funds  and 
eligible liabilities (MREL).  

The  EU  institutional  framework  for  the  implementation  of  macroprudential  policies  is  multi-
layered,  with  various  national  and  EU  authorities  involved.  To  preserve  the  integrity  of  the  Single 
Market,  the  implementation  of  macroprudential  measures  at  national  level  often  requires  the 
involvement of different EU bodies (such as the European Commission, the ESRB and so on). While 
the ESRB is tasked with the macroprudential oversight of the financial sector within the EU, the Single 
Supervisory Mechanism Regulation gives macroprudential powers to both the national authorities and 
the European Central Bank (ECB). These shared responsibilities have enhanced the ability of the EU 
and  Member  States  to  identify,  monitor  and  address  systemic  risks  in  the  diverse  EU  financial 
landscape. However, in this model, the harmonisation of certain aspects of the macroprudential toolkit 
is  essential  to ensure  a  level  playing field and  a certain level  of  simplification in  the  application  of 
macroprudential  measures.  For  instance,  the  different  approaches  in  the  identification  of  other 
systemically important institutions (O-SIIs) and the calibration of O-SII buffer rates cannot be fully 
explained by the economic or financial market specificities of Member States, such as the size of or 
banking sector concentration, and could be matter of concern for the single market and the Banking 
Union (see Appendix 2 for more). 

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In light of the above, the Commission will continue to work on macroprudential policies for banks, 
while ensuring compliance with the Basel III framework and taking into account that the overall level 
of capital and MREL requirements is deemed adequate. In this context, the Commission will mainly 
focus  on:  1)  monitoring  the  usability  and  releasability  of  capital  buffers  to  support  lending  to  the 
economy in the event of a systemic shock, while preserving financial stability; 2) promoting consistency 
in the use of macroprudential tools by national authorities; and 3) assessing the scope for simplification 
and the efficiency and the ability of the macroprudential framework to tackle both conventional and 
new risks. Moreover, the Commission will assess the modalities on how to update the feedback received 
through the 2021 targeted consultation, as well as to gather additional feedback on aspects of the review 
that are only partially covered in this report. 

2.  The macroprudential framework for NBFIs 

Non-bank financial intermediaries (NBFIs) have grown significantly in recent years, as non-bank 
financing has become increasingly important to the finance the economy. The ESRB estimates that non-
bank  financial  intermediation  accounts  for  at  least  €41.5  trillion  (39%)  of  the  European  financial 
sector’s  assets.10  NBFIs  comprise  very  diverse  sectors,  including  asset  management  companies  and 
investment funds, non-bank investment firms, family offices, supply chain finance companies, pension 
funds,  insurance  companies,  and  other  non-bank  entities.11  In  Europe,  NBFIs  play  a  pivotal  role  in 
fostering financial diversity and reducing dependency on bank financing, especially in the context of 
the  Capital  Markets  Union  and  the  development  of  a  robust  single  market.  They  therefore  make  a 
positive contribution to financial stability (through private risk sharing) and to innovation.  

Nonetheless, a rapid expansion of NBFIs can also generate new risks and challenges to financial 
stability. The growth of NBFIs has been accompanied by an increase in the riskiness of some asset 
portfolios, rising liquidity transformation and increased leverage, driven also by the ‘search for yield’ 
during an extended period of negative real interest rates.12 The interconnectedness between banks and 
NBFIs has also steadily expanded and increased the risk of contagion across the financial sector, with 
the potential to have negative spillover effects on the economy. 

Although work at international level to design and update the macroprudential framework for banks 
has advanced at a steady pace since the global financial crisis, work on macroprudential policies for 
NBFIs has proceeded in waves. The Financial Stability Board (FSB), the International Organization of 
Securities Commission and the International Association of Insurance Supervisors have progressively 
focused on developing macroprudential analyses and tools that aim to mitigate systemic risks related to 
NBFIs.  This  work  has  gained  even  more  traction  in  recent  years,  after  various  episodes  of  market 
turmoil (e.g., the ‘dash for cash’ during the COVID pandemic in March 2020 and the UK gilt market 
crisis in September 2022) and financial mismanagement (e.g., Archegos or Greensill Capital), which 
revealed the impact that the build-up of systemic risk and vulnerabilities  of NBFIs can have on the 
whole economy.  

10 ESRB (2023), EU Non-bank Financial Intermediation Risk Monitor 2022, June 2023. This statistics goes up to 
49%  if  we  enlarge  the  scope to  the  global  financial  system;  see  FSB  at  Non-Bank  Financial  Intermediation  - 
Financial Stability Board (fsb.org).  
11 The ESRB also includes an assessment of the crypto-asset ecosystem in the NBFI monitor, as it “may engage 
in types of financial intermediation that lead to similar vulnerabilities and expose them to similar risks”, see ESRB 
(2023), EU Non-bank Financial Intermediation Risk Monitor 2022 (europa.eu), p. 6. The FSB defines “the NBFI 
sector” as “a broad measure of all non-bank financial entities, composed of all financial institutions that are not 
central  banks,  banks  or  public  financial  institutions.”  FSB  (2022),  Global  Monitoring  Report  on  Non-Bank 
Financial Intermediation: 2022, p.3. This categorisation also includes financial market infrastructure under the 
category  of  ‘market  intermediaries’.  See,  FSB  (2022),  Enhancing  the  Resilience  of  Non-Bank  Financial 
Intermediation: Progress report , p. 18. Nonetheless, the FSB also identified a ‘narrow measure’ for NBFI, which 
is not based on entities, but as a bank-like activity measure. FSB (2022), ibid. p.3.  
12 Liquidity transformation is the process of using cash-like short-term liabilities to acquire longer-term assets 
such as loans. Leverage refers to either borrowing funds to buy an asset (physical or financial leverage) or posting 
margins to a contract where the party seeking leverage receives the financial return of an asset in exchange for a 
payment or a fee (e.g., total return swap or options), so called ‘synthetic’ leverage.  

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The FSB13 and the ESRB14 identified three structural vulnerabilities that contribute to the build-up of 
systemic  risk,  and  which  are  only  partially  covered  by  macroprudential  policies  today.  They  are 
systemic  liquidity  mismatches15,  excessive  leverage,  and  interconnectedness  within  NBFIs  and  of 
NBFIs with the banking sector. These vulnerabilities exacerbate the complexity of supervising such 
interconnected  sectors  and  highlights  the  need  to  consider  a  more  consistent  and  coordinated 
macroprudential supervision for NBFIs (see Appendix 2). 

As a result, the same conventional and emerging risks affecting banks, coupled with the diversity and 
complexity of NBFI sectors, may lead to specific vulnerabilities of NBFIs stemming from:  

1)  structural liquidity mismatches;  
2)  the build-up of excessive leverage across NBFIs; 
3)  interconnectedness among NBFIs and between NBFIs and banks, which may create hidden risk 

amplifiers and transfer of risk from the banking to the non-banking sectors; and 

4)  lack of consistency and coordination among macroprudential frameworks across the EU.  

In  the  absence  of  an  overall  EU  macroprudential  framework  governing  NBFIs,  and  to  tackle  some 
specific emerging risks in important NBFI sectors, a number of EU directives and regulations applicable 
to NBFIs already include some macroprudential tools that aim to mitigate the build-up of systemic risk 
or manage the impact of a systemic event (see Appendix 1). For instance, some tools and provisions to 
manage  liquidity,  leverage  and  operational  risks  were  created  for  the  investment  fund  sector  (for 
alternative  investment  funds,  undertakings  for  collective  investment  in  transferable  securities  and 
money market funds), in the insurance sector and for margin practices and risk management related to 
central counterparties. However, as credit activity and risks shift increasingly from the banking to the 
non-banking sectors, the Commission will collect further evidence on missing tools, potential gaps in 
existing  tools  to  meet  macroprudential  objectives  and  on  the  effectiveness  and  consistency  of 
macroprudential  policies  for  NBFIs  in  the  EU.16  This  work  will  underpin  and  support  any  policy 
decision that the 2024-2029 Commission may take in this area.  

Therefore, the Commission plans to run a targeted consultation on macroprudential policies for NBFIs 
in  2024.  The  aim  will  be  to  collect  further  insights  into  the  business  models  of  key  NBFIs  and  the 
interconnectedness  among  them  and  between  banks  and  NBFIs,  and  to  identify  gaps  in  the 
macroprudential framework and other factors that may contribute to the build-up of systemic risks in 
non-bank  financial  intermediation.  In  2024,  the  Commission  will  also  consult  on  the  review  of  the 
Securities Financing Transaction Regulation (SFTR). The SFTR aims at improving transparency on 
funding and lending transactions and allow for better monitoring of risks resulting from non-bank credit 
intermediation. 

13 FSB (2022), Global Monitoring Report on Non-Bank Financial Intermediation, December 2022, p. 31. 
14 ESRB, NBFI Monitoring, June 2023, p. 11 available at EU Non-bank Financial Intermediation Risk Monitor 
2022 (europa.eu).  
15 The liquidity mismatch is a discrepancy in the supply or the demand for a security or in the maturity dates of 
securities. A liquidity mismatch arises if funds give their investors the option of short-term redemptions, while at 
the same time investing in assets that cannot easily be liquidated at short notice.  
Liquidity mismatch in open-ended funds: trends, gaps and policy implications (europa.eu) 
16 The ECB, in particular, called for “a comprehensive [macroprudential] policy response to increase resilience” 
of the NBFI sectors, including “repurposing existing tools (i.e. by embedding macroprudential perspectives) and 
developing additional macroprudential policies as well as assessing the role of the authorities in implementing 
them.”  See,  ECB, Financial Stability Review Report,  November 2023. Banque de France has noted that “The 
vulnerabilities associated with NBFI call for appropriate measures to be implemented in a harmonised way at the 
international level. […] However, the work carried out up until now has focused on  microprudential measures, 
with  the  activation of  certain tools  being  at  the  discretion of  the funds,  and  centred  on investor  protection.  A 
macroprudential approach, which would integrate  the risks borne by cohorts of funds and their impact on the 
financial system as a whole, potentially including tools at the authorities' disposal, has yet to be defined.” See 
Banque de France, Non-bank financial intermediation: vulnerabilities and challenges, 14 November 2023. The 
Central Bank of Ireland published in July 2023 a discussion paper titled “An approach to macroprudential policy 
for investment funds” where, amongst other, it examines the systemic risk from investment funds and explores 
the idea of a more holistic macroprudential framework for investment funds. 

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Appendix 1 

THE CURRENT EU MACROPRUDENTIAL TOOLKIT FOR BANKS AND NBFIS 

The main macroprudential tools for banks are capital buffers, which are an additional layer of capital 
on top of minimum capital requirements. Capital buffers increase the banking sector’s resilience, by 
enabling  banks  to  absorb  greater  losses  without  breaching  minimum  requirements  and  therefore 
maintain the provision of key financial services and mitigate the amplification effects that the banking 
sector can have on the economic cycle. The EU macroprudential framework supports the accumulation 
of bank capital during periods of high credit risk and financial vulnerabilities. Subsequently, this capital 
can be utilised to absorb losses, when necessary, and to meet demand for credit in periods of economic 
downturn and crises.  

The  CRD  sets  out  five  macroprudential  capital  buffers,  which  together  form  the  combined  buffer 
requirement”  (CBR).  Each  bank  must  fulfil  a  specific  CBR,  the  components  of  which  are  set  at 
different levels. All banks must have a capital conservation buffer (CCoB) of 2.5% of the total amount 
of risk-weighted assets (RWA). Large banks deemed to be global systemically important institutions 
are required to have an additional buffer (G-SII buffer) of up to 3.5% of RWA (or more if deemed 
appropriate  by  supervisors).  In  the  EU,  national  competent  and  designated  authorities  (‘national 
authorities’) set buffer requirements also to bolster the resilience of other (domestically) systemically 
important institutions (O-SII buffers) up to 3% of the total risk exposure amount, to make the banking 
system more resilient to broad-based cyclical risk (counter-cyclical capital buffer - CCyB) or to address 
other  structural  or  cyclical  risks  not  covered  by  above-mentioned  buffers,  including  at  the  sectoral 
exposure level (systemic risk buffers - SyRB).17 In the Banking Union, the ECB has the power to increase 
(top up) buffers and tighten certain macroprudential measures set by national authorities.18 

National  authorities  can  also  tighten  the  risk  weights  applied  to  certain  exposures,  if  justified  by 
systemic risk. Under the current framework, several provisions in the CRR set rules on increasing risk 
weights  and  on  increasing  Loss  Given  Default  (LGD)  floors  for  banks  using  internal  models,  for 
residential  and  commercial  real  estate  exposures.  National  authorities  can  also  set  macroprudential 
limits to lending standards (i.e., borrower-based measures) that are provided for in national law in most 
EU Member States, but which are currently not enshrined in the EU macroprudential framework.  

Although  there  is  no  common  macroprudential  framework  governing  NBFIs,  EU  sectoral 
legislations already include some macroprudential tools and several provisions to manage risks. 
These include provisions on liquidity risks, leverage risks and operational risks that restrains the build-
up of systemic risk.  

In  the  investment  fund  sector,  the  Commission’s  legislative  proposals  to  amend  the  Alternative 
Investment  Funds  Managers  Directive  (AIFMD)19  and  the  Undertakings  for  Collective  Investment 
Schemes (UCITS) Directives,20 adopted in November 2021,21 reflected the ESRB’s recommendation 

17 The capital buffers, which form together the combined buffer requirement (CBR), are enshrined in the following 
articles of the Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013, OJ L 176, 
27.6.2013,  p.  338–436,  on  access  to  the  activity  of  credit  institutions  and  the  prudential  supervision  of  credit 
institutions and investment firms: the CCoB in article 129; the G-SII and O-SII buffers in article 131; the CCyB 
in article 130; and the SyRB in article 133.  
18 Article 5 (2) of Council Regulation No 1024/2013 of 15 October 2013 conferring specific tasks on the European 
Central Bank concerning policies relating to the prudential supervision of credit institutions. 
19 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment 
Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and 
(EU) No 1095/2010.  
20 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of 
laws, regulations and administrative provisions relating to undertakings for collective investment in transferable 
securities (UCITS) (recast).  
21 European Commission (2021), Capital markets union: Commission adopts package to ensure better data access 
and revamped investment rules, 25 November 2021.  

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on liquidity and leverage risks in investment funds.22 On 19 July 2023, Parliament and Council reached 
an agreement on the review. They agreed to introduce a harmonised list of liquidity management tools, 
which are microprudential tools that will become available for Alternative Investment Fund managers 
and UCITS across the EU. The review also sets a structural limit on leverage for loan-originating funds. 
The Money Market Fund Regulation (MMFR)23 includes a number of macroprudential tools, such as 
structural  limits  on  leverage  and  derivatives  trading,  liquidity  buffers  and  stress  testing  under 
hypothetical scenarios. A recent targeted consultation24 and the accompanying report,25 concluded that 
the MMFR has boosted the resilience of the sector, while noting several vulnerabilities that would merit 
further assessment.  

For  insurers, the Commission adopted a legislative proposal to amend the Solvency II Directive in 
September 2021. These amendments adapt the well-established EU risk-sensitive prudential framework 
applicable to insurers and reinsurers to new developments and further strengthen their role in financing 
to the economic recovery and the dual digital and green transitions.26 The proposal included most of the 
recommendations made by EIOPA (2020)27 and ESRB28 related on extending the supervisory toolkit 
and  bringing  in  new  requirements to  tackle  sources  of  systemic  risk.  In  particular,  the  Commission 
proposed  to  grant  national  authorities  the  power  to  impose  additional  measures  to  strengthen  the 
insurer’s financial position in times of crisis, to impose a temporarily freeze on redemption rights for 
life-insurance contracts in exceptional circumstances and additional mitigating measures for liquidity 
risk.  It  also  proposed  to  expand  the  Own  Risk  and  Solvency  Assessment  and  the  prudent  person 
principle to cover macroprudential concerns and to draft pre-emptive plans (recovery and resolution 
plans,  as  well  as  systemic  risk  and  liquidity  risk  management  plans).  Parliament  and  Council  have 
recently  reached  an  agreement  on  these  proposals,  which  are  finalised  for  adoption  in  the  coming 
months. 

On margining practices and risk management of central counterparties (CCPs), the Commission 
adopted  in  December  2022  a  clearing  package,  which  amends  the  European  Markets  Infrastructure 
Regulation (EMIR) and other pieces of financial services legislation (‘EMIR 3 review’).29 The review 
includes provisions to:  

- 

- 
- 

bring greater  transparency to margin calls for market players that clear as clients (including 
funds and insurance companies);  
put greater emphasis on avoiding procyclicality of haircuts; and  
require CCPs to do their utmost not to withhold intraday variation margins and instead to pass 
them through and avoid “liquidity hoarding”.  

In  addition,  the  proposal  creates  a  cross-sectoral  monitoring  mechanism  (the  “Joint  Monitoring 
Mechanism”) with the aim of monitoring more closely the developments across the clearing ecosystem 
and of developing liquidity stress tests for the whole clearing chain.  

Many of the international principles on NBFIs performing bank-like activities, including measures 
to  improve  transparency  of  securities  financing  transactions  and  on  the  reuse  of  collateral,  were 

22  ESRB  Recommendation  of  7  December  2017  on  liquidity  and  leverage  risks  in  investment  funds 
(ESRB/2017/6).  
23 Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market 
funds available at EUR-Lex - 02017R1131-20190101 - EN - EUR-Lex (europa.eu).  
24 European Commission (2022), Targeted consultation on the functioning of the Money Market Fund Regulation, 
12 April 2022.  
25 Report from the Commission on the adequacy of Regulation (EU) 2017/1131 on money market funds from a 
prudential and economic point of view (europa.eu) 
26 European Commission (2021), Solvency II review (europa.eu), 22 September 2021.  
27 EIOPA (2020), Opinion on the 2020 review of Solvency II, 17 December 2020.  
28 For information on systemic risk tools for insurers see, ESRB (2022),  Letter  to Chairperson of the Council 
Working  Party  on  Solvency  II  Review,  2  February  2022;  ESRB  (2022),  Letter  to  Members  of  the  European 
Parliament, November 2022.  
29 European Commission (2022), Capital markets union: clearing, insolvency and listing package (europa.eu), 7 
December 2022.  

7 

 
 
 
 
 
 
implemented through the Regulation on Securities Financing Transactions30 (SFTR) adopted in 2015. 
This Regulation also applies to NBFIs and has helped bring greater transparency to the repo activities 
carried out both by banks and by NBFIs.  

To shed light on the interconnections between NBFIs and the banking sector,  the CRR includes 
reporting requirements that aim to improve the transparency of bank’ exposures to NBFIs, with special 
focus on bank-like activities performed by NBFIs31. Banks are required to report to supervisors their 
largest ten exposures to entities that “carry out banking activities and services  outside the regulated 
framework”.32  

30  Regulation  (EU)  2015/2365  of  the  European  Parliament  and  of  the  Council  of  25  November  2015  on 
transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (Text 
with EEA relevance), OJ L 337, 23.12.2015.  
31 See Article 394(2) of Regulation (EU) No 575/2013, OJ L 176, 27.6.2013, p. 1–337.  
32  These  requirements  were  operationalised  through  a  Level  2  Delegated  Act,  adopted  by  the  European 
Commission on 6 September 2023, which harmonises the criteria for the identification of these entities by banks, 
specifically  laying  down  the  EU  acts  that  constitute  “the  regulated  framework”;  see  Commission  Delegated 
Regulation (EU) 2023/2779 of 6 September 2023 supplementing Regulation (EU) No 575/2013 of the European 
Parliament  and  of  the  Council  with  regard  to  regulatory  technical  standards  specifying  the  criteria  for  the 
identification of shadow banking entities referred to in  Article 394(2) of Regulation (EU) No 575/2013; OJ L, 
2023/2779, 12.12.2023.  

8 

 
 
 
 
 
 
 
 
 
Appendix 2 

REVIEW  OF  THE  MACROPRUDENTIAL  FRAMEWORK  FOR  BANKS  AND  NON-BANK  FINANCIAL 
INTERMEDIARIES (NBFIS) 

Article 513 of Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/876, requires the 
Commission, in consultation with the EBA and ESRB, to review the EU macroprudential framework 
in the CRR and CRD by June 2022 and, if appropriate, to submit a legislative proposal to the European 
Parliament  and  to  the  Council  by  December  2022.    EU  law  requires  the  Commission  to  assess  the 
effectiveness,  efficiency  and  transparency  of  the  macroprudential  framework,  listing  a  number  of 
specific  issues  to  be  considered.  Article  513(1)(g)  of  the  CRR  also  mandates  the  Commission  to 
consider tools to address systemic risks arising from the exposures of banks to NBFIs,33 especially from 
derivatives and securities financing transactions markets, asset management and insurance sector.  

The EU macroprudential framework for banks has  helped boost the banking sector’s resilience in a 
preventive manner and has helped safeguard financial stability in the EU by limiting the build-up of 
systemic risks. In some areas the current framework has proved able to meet its intended objectives. 
For  example,  after  the  onset  of  the  COVID-19  pandemic,  national  authorities  adopted  system-wide 
distribution restrictions in line with the ECB and ESRB recommendations on dividend  distributions 
during the COVID-19 pandemic even though the restrictions were not enshrined at EU level (as also 
mandated to be investigated by Article 518b CRR). However, empirical evidence, studies carried out 
by several EU bodies, analyses by the Commission, the 2021 public consultation and targeted calls for 
advice have also highlighted certain shortcomings that merit further analysis in view of a possible 
legislative proposal.  

Usability and releasability of capital buffers to support lending to the economy 

Although capital buffers are designed to be used in a crisis, empirical evidence suggests that banks may 
be  unwilling  or  unable  to  use  them  as  envisaged,  with  potentially  adverse  effects  on  the  economy. 
Banks may be unwilling to use buffers as they may be concerned about:  

- 
- 
- 

constraints in the distribution of dividends, bonuses and other pay-outs; 
broader market stigma if the CBR is breached;  
uncertainty  as  to  whether  the  use  of  buffers  will  actually  be  supported  or accepted  by  their 
supervisors or would need additional supervisory scrutiny or measures such as stress tests, as 
well as the economic outlook and the duration and impact of any crisis34.  

There  is  also  evidence  that  the  banks’  ability  to  use  capital  buffers  may  be  limited35  by  other 
prudential  or  resolution  minimum  requirements  (leverage  ratio  and  minimum  requirements  on  own 
funds  and  eligible  liabilities  (MREL36))  that  may  become  binding  before  the  buffers  are  exhausted, 

33 Non-bank financial intermediation refers to a heterogeneous group of financial institutions, other than banks, 
who  facilitate  the  flow  of  funds  between  savers  and  borrowers  in  the  economy.  These  intermediaries  include 
entities  such  as  asset  management  companies,  investment  funds,  insurance  companies,  pension  funds,  family 
offices,  market  operators,  and  other  non-bank  financial  institutions  that  offer  various  financial  services  and 
products.  
34 For further possible impediments to buffer usability see Behn et al. (2020), Macroprudential capital buffers – 
objectives and usability, ECB Macroprudential Bulletin, October.  
35 See ESRB (2021), Report of the Analytical Task Force on the overlap between capital buffers and minimum 
requirements, December 2021 and BCBS (2022), Buffer usability and cyclicality in the Basel Framework.  
36 MREL is set by resolution authorities to ensure that banks maintain at all times sufficient eligible instrumentsto 
be able to underpin the chosen resolution strategy. For instance, if the resolution strategy includes bail-in and the 
continuation of the bank’s activity in the market, the MREL is set to absorb losses and restore the bank’s capital 
position, allowing it to continue carrying out its critical functions after a crisis. The requirements are detailed in 
the EU Bank Recovery and Resolution Directive 2014/59/EU (BRRD), as amended by Directive EU 2019/879 as 
regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms (BRRD II); 
Regulation 806/2014/ EU establishing a Single Resolution Mechanism (SRMR)  as amended by Regulation EU 
2019/877 as regards the loss-absorbing and recapitalisation capacity of credit institutions and investment firms 
(SRMR II); and the CRR and CRD. 

9 

 
 
 
 
 
 
especially for banks with low risk-weights. While these potential limitations to banks’ ability to use 
buffers is a feature of the current framework, the materiality of such limitations may change over time 
and across banks and become less important37. This may occur as a result of the implementation of the 
prudential reforms in the recently agreed “Banking Package” and the phase-in of MREL.  

The  releasability  (i.e.,  freeing  up)  of  capital  buffers  could  also  be  improved  and  become  more 
efficient.38 Under the current framework, the bulk of capital buffers (i.e., the capital conservation buffer, 
the G-SII and O-SII buffers and, to a lesser extent, the systemic risk buffer) are of a structural nature, 
while  only  the  CCyB  is  explicitly  designed  to  be  releasable.  This  buffer  accounts  for  a  very  small 
proportion of the total capital buffer requirements, roughly 5% of the CBR of banks or 0.1% of RWA 
in the Banking Union at the onset of the COVID-19 pandemic. While many Member States increased 
their CCyB rates after the pandemic, its size is still dwarfed by non-releasable buffers.  More buffer 
releases were not needed in response to the pandemic because of the extensive public support granted 
by Member States through fiscal, monetary, and regulatory policy measures. However, initial empirical 
evidence  suggests  that  the  economy  could  have  benefited  from  more  releasable  capital  buffers  to 
stimulate additional lending during the crisis.39  

Consistency in the use of macroprudential tools for banks by national authorities  

While recognising the shared responsibilities of the ECB and national authorities in the Banking Union, 
the  application  of  the  macroprudential  framework  in  the  EU  is,  to  a  significant  extent, 
decentralised. This is justified on the basis that systemic risks and financial cycles may differ across 
Member States, with national authorities generally considered well placed to identify and effectively 
manage such  risks.  However, this model  is  not  always  obvious to  reconcile  with  the functioning  of 
single market. It is essential to harmonise certain aspects of the macroprudential toolkit to ensure a level 
playing field.  

On the one hand, national macroprudential measures may not be effective if they can be, for example, 
circumvented  by  cross-border  activities.  This  issue  can  be  tackled  by  ‘reciprocation’,  i.e.,  the 
application of equivalent measures by the national authorities of other Member States to banks operating 
cross-borders  in  the  country  that  imposed  a  national  macroprudential  measure.  On  the  other  hand, 
capital buffer and risk-weights can also be used to unduly restrict the free movement of capital and 
force  cross-border  banking  groups  to  maintain  higher  capital  requirements  in  host  countries.  This 
potentially reduces the cost of bank failures to host countries but could also harm the efficiency of cross-
border banking. The ESRB, the ECB, the EBA and the European Commission are vested with certain 
powers under detailed procedures to coordinate macroprudential policies and promote the integrity of 
the single market, but their capacity to ensure consistency in the approaches of national authorities is 
limited.40   

The  identification  of  other  systemically  important  institutions  (O-SIIs)  and  the  calibration  of  O-SII 
buffer rates are not consistent across the single market.41  For example, O-SIIs with similar scores based 
on the EBA standardised methodology on the criteria for assessment of OSIIs are required to maintain 

37 See, for instance, Leitner et at (2023), How usable are capital buffers? An empirical analysis of the interaction 
between capital buffers and the leverage ratio since 2016, ECB Occasional Paper No 329.  
38 An ECB study estimates that larger capital buffers and the new resolution framework significantly boosted the 
banking system’s capacity to absorb losses. The ability of the banking system to absorb losses has increased more 
than 3-fold over the last ten years. See Carmassi et al. (2019),  Is taxpayers’ money better protected now?  An 
assessment of banking regulatory reforms ten years after the global financial crisis. See also, Basel Committee 
(2022), Buffer usability and cyclicality in the Basel framework, 5 October 2022.  
39 See Couaillier et al. (2021, 2022), Bank capital buffers and lending in the euro area during the pandemic and 
Caution: do not cross! Capital buffers and lending in Covid-19 times.  
40 For example, the ESRB and EBA are to provide opinions on certain measures and measures with high impact 
that  require  authorisation  or  non-objection  of  the  Commission.  The  ECB  has  the  right  to  object  to  any 
macroprudential measure set out in EU law intended by an SSM-participating Member State. The ESRB also has 
more general coordination powers, for example to issue warnings and recommendations for national authorities, 
such as the one on the CCyB or voluntary reciprocity.  
41 EBA report on calibration of OSII buffer rates.  

10 

 
 
 
 
 
 
different O-SII buffer rates. This heterogeneity cannot be fully explained by the specific economic or 
financial market conditions in Member States, such as the size or concentration of banking sector, and 
this is a matter of concern for the single market and the Banking Union. Some of these differences can 
be attributed to the fact that some Member States used the SyRB instead of, or on top of, the O-SII 
buffer to tackle these risks.  Nevertheless, the heterogeneity in the setting of O-SII buffers warrants 
further assessment42.  

The SyRB - the most flexible buffer - is used to face a wide range of systemic risks including common 
geographic exposures, public and private sector indebtedness, banking sector size as a percentage of 
GDP  and external  shocks  to  the economy.  However, this flexibility  can  give  rise  to  concerns  about 
arbitrariness and duplicative prudential requirements. Last, Article 458 of the CRR, which allows 
the increase in risk-weights on real estate exposures for banks using internal models, should be used 
only as a last resort measure by national authorities. Nonetheless, certain inconsistencies have been 
observed in how national authorities apply this measure and it would also be necessary to ensure the 
efficiency of the process for its activation.  

Simplification and efficiency of the macroprudential framework and its governance 

The efficiency and effectiveness of the macroprudential toolkit can be hampered by including measures 
that are not used or lacking measures in certain areas. For instance, Articles 138 and 139 of CRD focus 
on tackling risks stemming from excessive credit growth in specific third countries, but these powers 
have never been used.  It may also be necessary to further reflect on the supervisory and governance 
structure of the EU macroprudential supervision, especially when dealing with new risks and tools. The 
purpose  would  be  to  simplify  supervisory  processes  where  possible,  taking  into  account  the 
complexities  of  the  financial  ecosystem  and  safeguarding  the  European  economy  from  potential 
disruptions.  

Ability of the macroprudential toolkit for banks to address conventional and new risks 

Since the introduction of the macroprudential toolkit for banks, Member States have taken measures to 
tackle real estate vulnerabilities, particularly regarding residential real estate43 using both capital-based 
measures enshrined in EU law (buffers and risk weight measures) and increasingly borrower-based 
measures  (BBMs).  In  addition  to  Article  458  of  the  CRR,  Articles  124  and  164  of  the  CRR  allow 
Member  States  to  apply  higher  risk-weights  for  exposures  secured  by  mortgages  on  residential  and 
commercial  immovable  property  and  LGD  floors  to  retail  exposures  secured  by  residential  and 
commercial real estate.  

To increase the effectiveness of these macroprudential tools based on risk-weights adjustments, it would 
be necessary to achieve greater consistency in the activation and use of risk-weight measures and to 
align  the  macroprudential  risk  weight  toolkit  for  banks  using  internal  models  and  the  standardised 
approach.  The  effectiveness  of  these  measures  could  be  also  increased  by  focusing  on  risk-weights 
rather than individual risk parameters (Article 164 of CRR).  BBMs are preventive, macroprudential 
limits to lending standards that are provided for in national legislation in most Member States, but which 
are currently not enshrined in EU law.44 BBMs currently differ across Member States in terms of their 
design, definitions of underlying indicators, scope, nature (legally/non-legally binding), exceptions, and 
governance  arrangements.  Moreover,  BBMs  are  not  enshrined  in  legislation  in  all  Member  States, 
which complicates reciprocation and may not allow Member States to tackle efficiently the systemic 
risk stemming  from the  real  estate  sector.  Furthermore,  developments in  the  commercial  real  estate 

42 An EBA analysis shows that some Member States are very strict and set a maximum possible O-SII buffer rate 
under CRD IV for banks with a relatively low O-SII score, whereas other Member States are relatively lenient 
and set a 0% or low buffer rate despite very high O-SII scores. Alternatively, very high O-SII scores can result in 
O-SII  buffer  rates  of  0.25%  in  one  Member  State  and  2%  (maximum  rate  at  the  time  of  analysis)  in  another 
Member State.  
43  The  ESRB  conducted  systematic,  forward-looking  assessments  of  vulnerabilities  in  residential  real  estate 
markets  in  the  EEA  in  2016,  2019  and  2022,  which  formed  the  basis  for  country-specific  warnings  and 
recommendations.  
44  For  further  details  see  the  ESRB  Review  of  the  EU  Macroprudential  Framework  for  the  Banking  Sector: 
Response to the call for advice, March 2022, and the ESRB database of national measures.  

11 

 
 
 
 
 
 
sector warrant further attention. Macroprudential measures targeting specifically commercial real estate 
are scarce and could be further assessed, alongside the efforts to close current data gaps regarding bank 
exposures to this sector. 

Anticipating,  monitoring  and  mitigating  financial  stability  risks  linked  to  climate  change  and 
environmental degradation is increasingly becoming an essential task for national and EU authorities. 
Transition and physical risks impact individual financial institutions and the broader  financial sector 
(including non-bank financial intermediaries). These risks can affect borrowers’ solvency and the value 
of real estate loan collateral equally – extreme weather events, including heatwaves, wildfires, and the 
recent  severe  floods  experienced  globally,  have  vividly  demonstrated  the  significant  harm  that 
vulnerable  real  estate  properties  and  other  assets  could  endure.  Assets  that  generate  significant 
greenhouse gas emissions could be subject to accelerated depreciation, as the economy moves towards 
climate neutrality in line with the EU climate law.45 A significant exposure of financial institutions to 
these assets should therefore be covered with adequate buffers. Currently, climate-related financial risks 
are mainly considered in stress-tests,46 but they are not yet factored in more broadly in macroprudential 
requirements. The EU and international fora (ESRB, ECB,  the Financial Stability Board (FSB), the 
Network for Greening the Financial System), currently discuss how to  better tackle these risks with 
macroprudential tools. The agreement reached on the “Banking Package” clarified that the SyRB could 
be used to deal with risks related to climate change and climate transition.  

System-wide cyber-risk raises major concerns from a macroprudential perspective in an increasingly 
digitalised financial sector, exposed to growing cyber-threats. Reliance on third-party ICT providers 
allows financial institutions to achieve state of the art protection against cyber threats, but reliance on 
critical  infrastructure  provided  by  third-party  providers  may  also  create  new  vulnerabilities  and 
concentration  risks.  Financial  stability  can  be  disrupted  when  cyber  incidents  spread  rapidly  across 
banks,  non-banks  and  financial  market  infrastructures  via  financial  and  information  technology 
connections, and a common dependence on third-party service providers. The DORA framework47, the 
Directive  on  cybersecurity48  and  ongoing  work  to  respond  to  the  ESRB  recommendation  on  cyber 
incident coordination,49 as well as supervisory stress test  of banks’ resilience to cyberattacks by the 
Single Supervisory Mechanism,50  aim to mitigate these risks.  

Vulnerabilities of non-bank financial intermediaries (NBFIs) 

For  NBFIs,  the  FSB  and  the  ESRB  have  identified three main  structural  vulnerabilities  of  different 
intensity  and  that  are  only  partially  tackled  by  the  current  macroprudential  measures,  which  can 
contribute to the build-up of systemic risk. The three vulnerabilities are systemic liquidity mismatches, 
(excessive) leverage and interconnectedness. A limited and fragmented macroprudential supervision of 

45   Regulation  (EU)  2021/1119  of  the  European  Parliament  and  of  the  Council  establishing  the  framework  for 
achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (‘European Climate 
Law’), OJ L 243, 9.7.2021. 
46 The EBA has dedicated mandates on climate risk stress test. The ECB also performs climate risk stress tests 
and  incorporates  the  results  of  these  tests  in  the  Supervisory  Review  and  Evaluation  Process  (SREP)  using  a 
qualitative approach.  
47 Regulation (EU) 2022/2554 of the European Parliament and of the Council of 14 December 2022 on digital 
operational resilience for the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, 
(EU) No 600/2014, (EU) No 909/2014 and (EU) 2016/1011.  
48 Directive (EU) 2022/2555 of the European Parliament and of the Council of 14 December 2022 on measures 
for a high common level of cybersecurity across the Union, amending Regulation (EU) No 910/2014 and Directive 
(EU) 2018/1972, and repealing Directive (EU) 2016/1148 (NIS 2 Directive; OJ L 333, 27.12.2022). The Directive 
is  a  horizontal  type  of  legislation  applying  to  a  number  of sectors  and  requires  entities, such  as  cloud  service 
providers, data centres, managed service providers or managed security service providers, to take cybersecurity 
risk  management  measures,  including  supply  chain  security  measures.  The  Commission  has  to  adopt  an 
implementing  act  further  specifying  the  cybersecurity  measures  with  respect  to  these  types  of  entities  by  17 
October 2024. 
49 ESRB recommends establishing a systemic cyber incident coordination framework (europa.eu).  
50 ECB to stress test banks’ ability to recover from cyberattack (europa.eu) 

12 

 
 
 
 
 
 
NBFIs across Member States may also create an additional source of systemic risk for the EU’s financial 
system.  

Systemic liquidity mismatches can arise from large and unexpected shifts in liquidity demand if there 
is a naturally scarcer supply of liquidity in times of stress. In March 2020, precautionary demand for 
liquidity in the economy and related cash needs by financial institutions led to the broad-based selling 
of financial assets, the so called “dash for cash”.51 On the supply side, a lower risk appetite, regulatory 
constraints  (with  implementation  of  the  Basel  III  framework)  and  operational  challenges  limited 
liquidity provision by banks and broker dealers. In September 2022, the surge in interest rates of UK 
gilts (and the  subsequent fall  in prices  of financial  assets)  sparked fear  in  the  pension  funds sector, 
where Liability-Driven (LDI) strategies led to a major sell-off of UK gilts, which in turn caused the 
Bank of England to intervene with a  large asset purchase programme.52 On 28 September 2023, the 
Bank of England announced the plan to create a new liquidity tool for NBFIs, which will initially cover 
insurance and pension  funds  and may  potentially  be extended  to  all  NBFI  entities that meet  certain 
eligibility (ex-ante resilience) requirements.53  

In addition, the market stress caused by the COVID outbreak in March 2020 revealed that certain money 
market funds (MMFs) can be susceptible to runs by investors (implying a first-mover advantage) that 
can  exacerbate  liquidity  shocks,  as  MMFs  must  sell  their  assets  to  fund  very  large  outflows  in 
exceptional circumstances. This can often happen in connection with liquidity and transparency of the 
underlying short-term funding markets.54 The Commission actively engages in international discussions 
on measures that aim to tackle systemic liquidity mismatches. The focus of international discussions is 
on  pre-emptive  liquidity  measures  (such  as  liquidity  buffers  or  new  margining  practices)  and  on 
liquidity measures whose effects and use are amplified by systemic events (like sector-wide liquidity 
management tools or the power to suspend redemption rights, also called ‘ex-post liquidity measures’) 
in various NBFI sectors, including investment funds, pension funds, and insurance companies.55  

Liquidity mismatches are often amplified by excessive leverage that, once it becomes unsustainable 
due to related financing costs, can lead to sudden unwinding of positions in the market (deleveraging) 
and assets fire sales, with spill-over effects on other parts of the financial system and the economy. The 
case of Archegos Capital Management in March 2021, a ‘family office’ operating like a hedge fund, is 
an  example  of  the  impact  the  use  of  leverage,  combined  with  liquidity  mismatches,  can  have  well 
beyond NBFIs. The collapse of Archegos spread major losses across financial institutions (and most of 
all on Credit Suisse with a $5.5 billion loss) due to a large (leveraged) exposure to few stocks via total 
return swaps and contracts for difference, which gave Archegos the possibility to leverage 5-6 times 
the  invested  capital.56  The  trades  were  underreported  due  to  the  regulatory  status  of  family  offices, 
which were unregulated both in Europe and the US. Nonetheless, some trades were visible when trading 
with European counterparts  operating under EMIR reporting (mainly UK banks), but insufficient  to 
give a full and timely picture that could trigger supervisory intervention at least on bank counterparts.  

The FSB work also highlights pockets of high synthetic leverage in some NBFI entities, notably some 
hedge funds and Liability-Driven Investment (LDI) funds,57 which in some cases also display a high 
degree  of  interconnectedness.  Ongoing  work  at  both  EU  and  international  levels  aims  at  gaining  a 

51 See, FSB (2020), Holistic Review of the March Market Turmoil - Financial Stability Board (fsb.org), p.11.  
52 For more information see, Bank of England (2023), An anatomy of the 2022 gilt market crisis, Staff Working 
Paper No. 1019, 31 March 2023.   
53 A journey of 1000 miles begins with a single step: filling gaps in the central bank liquidity toolkit - speech by 
Andrew Hauser | Bank of England.  
54  See,  European  Commission  (2023),  Report  from  the  Commission  on  the  adequacy  of  Regulation  (EU) 
2017/1131 on money market funds from a prudential and economic point of view (europa.eu) and ESRB (2022), 
The market for short-term debt securities in Europe: what we know and what we do not know (europa.eu).  
55 The FSB is also contemplating a list of actions on margin practices for both users (margin preparedness) and 
market infrastructure operators, some of which are already included in the EMIR framework. See, FSB (2022) 
Enhancing the Resilience of Non-Bank Financial Intermediation: Progress report (fsb.org), p. 25.  
56 or more details, ESMA (2022), ESMA publishes ex-post analysis of derivatives risks in Archegos (europa.eu). 
57  See,  FSB  (2023),  The  Financial  Stability  Implications  of Leverage  in  Non-Bank  Financial  Intermediation  - 
Financial Stability Board (fsb.org). 

13 

 
 
 
 
 
 
deeper understanding on the way existing reporting and disclosure frameworks can effectively tackle 
excessive leverage. This involves ensuring that leveraged positions remain transparent and reconcilable, 
even  when  complex  legal  structures  or  intricate  derivative  instruments  are  involved.  Furthermore, 
national and EU supervisory bodies are actively exploring ways to utilise reported data to manage such 
risks  effectively  and  promote  data  sharing  to  minimise  additional  reporting  burdens  on  market 
operators.58 Discussions are also underway on potential limits to the accumulation of leverage in specific 
sectors, particularly in unregulated legal entities such as family offices.59  

Interconnectedness among NBFIs and with the banking sector increases the risk of contagion across 
the financial sector, with potential negative spillover effects on the economy. For example, insurance 
and pension funds are the largest domestic investors in euro area investment funds (excluding MMFs), 
at around 25%, followed by households at 19% and investment funds (which invest in other funds) at 
16%.60 Conversely, investment funds and OFIs are an important source of funding for the banking sector 
as they held 14% of euro-area banking sector liabilities in the first quarter of 2023. Including insurance 
companies and pension funds, NBFIs hold roughly 28% of outstanding bank debt securities in the euro 
area.61  

This interconnectedness can exacerbate the negative impact of liquidity shocks or excessive leverage 
mentioned above or even hide vulnerabilities and the build-up of systemic risk. A major risk associated 
with  interconnectedness  between  NBFIs,  and  the  banking  sector  is  the  potential  cross-sectoral 
transmission of financial shocks. If an NBFI experiences financial distress, it can transmit this distress 
to its counterparties in the banking sector and to other NBFIs through both asset and liability exposures 
(e.g.,  derivative  positions,  bank  security  holdings  and  repo  funding).  The  default  of  Archegos 
highlighted the importance of strong risk management and the way interconnectedness can heighten the 
credit risk for banks (as it happened to Credit Suisse for instance). Banks can also transmit distress to 
NBFIs, as they are central to the functioning of derivatives markets and are also large lenders to NBFIs.  

NBFIs and banks can be interconnected via common exposures, if they invest in similar assets or have 
exposures to the same counterparties. If these common exposures are subject to financial stress, NBFIs 
and banks may be impacted simultaneously, increasing the potential for a systemic crisis. Moreover, if 
NBFIs and traditional banks act in sync they can trigger large fire sales on common assets (e.g., the 
market turmoil in March 2020, the liquidity crunch for energy companies caused by spikes in margin 
calls  due  to  the  energy  crisis  in  March  2022).  Supervisors  are  monitoring  potential  vulnerabilities 
stemming from interconnectedness within NBFIs and with banks via direct links (e.g., holdings between 
banks and NBFIs and among NBFIs or margin calls) and indirect links (e.g., common asset exposures).  

Last,  but  not  least,  due  to  these  structural  vulnerabilities  and  the  complexity  in  supervising  such 
interconnected  sectors,  the  merits  of  a  more  consistent  and  coordinated  macroprudential 
framework  for  NBFIs  should  be  further  assessed.  There  are  currently  only  a  few  macroprudential 
measures  applicable  to  NBFIs  and  supervision  of  such  tools  for  each  sector  spans  across  different 
supervisors  even  within  the  same  jurisdiction.  For  example,  under  the  AIFMD/UCITS  directives, 
national competent authorities have the power to suspend investors’ redemption rights when funds face 
financial  stability  risks  and  national  supervisors  have  exercised  this  power  individually  in  the  past. 
There is limited experience on the coordinated use of such power when facing a broader EU-wide risk 
to the financial stability.  

Supporting  a  consistent  application  of  macroprudential  tools  and  sufficient  coordination  among 
supervisors within the EU and with supervisors in third countries are key to effective macroprudential 

58 The European Commission has also adopted a broader Strategy on supervisory data in EU financial services 
(europa.eu) in December 2021 targeting sharing and reuse of supervisory data across the financial system. 
59 This includes consideration of new metrics for measuring leverage tailored to various NBFIs, particularly those 
introduced  through  off-balance-sheet  activities,  such  as  targeted  off-balance-sheet  derivatives  or  securities 
financing transactions. For instance, to what extent transactions involving pledged collateral are reported on the 
balance sheet of NBFIs and how these positions can be reconciled using current reporting requirements.   
60 ESRB (2022), EU Non-bank Financial Intermediation Risk Monitor 2022 (europa.eu), July 2022.  
61 See, ECB, Financial Stability Review, May 2023, Special feature on “Key linkages between banks and the non-
bank financial sector”.  

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policies. Fragmentation between sectors and national jurisdictions raises important questions on how to 
ensure effective coordination among Member States (especially in relation to systemic events that affect 
more than one Member State) and how to share the necessary data among authorities under the current 
reporting frameworks.  

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