The ESRB handbook on operationalising macroprudential policy in the banking sector

This Handbook aims to assist macroprudential authorities in the European Union (EU) to operationalise instruments set out in the prudential rules for the EU banking sector. While some of the rules - commonly referred to as the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulation (CRR) - have been phased in, Member States can already use all of the macroprudential instruments. The global financial crisis highlighted fault lines in the existing institutional arrangements, including the lack of a macroprudential 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 macroprudential oversight of the EU financial system. Since it was set up in 2010, the ESRB has actively promoted the development of macroprudential policy frameworks. The coming into force of the CRD IV/CRR on 1 January 2014 was a new milestone in the development of a macroprudential policy framework in the EU. The new rules provided Member States with a common legal framework and a set of macroprudential 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 IV/CRR is an important step towards increasing the ability of authorities to conduct macroprudential policy. This Handbook and the companion Flagship Report are the ESRB's main contributions to an EU macroprudential policy framework. This Handbook is targeted at macroprudential authorities and offers detailed instrument-specific advice on how to design and implement macroprudential policy for the banking sector. The companion ESRB Flagship Report is targeted at high-level policy-makers and provides an overview of the new macroprudential policy framework. This Handbook was updated in 2015 and 2017 on the basis of the growing experience with the use of macroprudential instruments. Nonetheless, further revisions will be needed, given additional experience gained and to reflect future regulatory changes. In 2015 an addendum to the ESRB Handbook on the macroprudential leverage ratios was published.