The ESRB handbook on operationalising macro-prudential policy in the banking sector

This Handbook aims to assist macro-prudential authorities in the European Union (EU) to operationalise instruments set out in the new prudential rules for the EU banking sector. While the rules - commonly referred to as the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR) - are being phased in, Member States can start using some of the macro-prudential instruments from 1 January 2014. The global financial crisis highlighted fault lines in the existing institutional arrangements, including the lack of a macro-prudential policy framework. The crisis revealed that authorities responsible for overseeing the financial system usually lacked appropriate mandates, analytical tools and/or instruments to address systemic risk. In the EU, a number of important steps have been taken to address these shortcomings. One such step was the establishment of the ESRB, with responsibility for macro-prudential oversight of the EU financial system. Since it was set up in 2010, the ESRB has actively promoted the development of macro-prudential policy frameworks. The coming into force of the CRD/CRR on 1 January 2014 is a new milestone in the development of a macro-prudential policy framework in the EU. The new rules provide Member States with a common legal framework and a set of macro-prudential instruments to mitigate systemic risk in the banking sector. Ultimately, this framework will need to be extended beyond the banking sector (for example, to cover e.g. the insurance sector, financial infrastructures, or shadow banking). For now, the CRD/CRR is an important step towards increasing the ability of authorities to conduct macro-prudential policy. This Handbook and the companion Flagship Report are the ESRB's latest contributions to an EU macro-prudential policy framework. This Handbook is targeted at macro-prudential authorities and offers detailed instrument-specific advice on how to design and implement macro-prudential policy for the banking sector. The companion ESRB Flagship Report is targeted at high-level policy-makers and provides an overview of the new macro-prudential policy framework.