Voluntary reciprocity framework for macroprudential measures in the EU
Within the scope of prudential legislation applicable to credit institutions in the European Union, national authorities may use various macroprudential instruments to stave off and mitigate risks to financial stability (systemic risk) in their countries. In this setting the regulations provide, for certain instruments, that national authorities that activate a measure may request that the authorities of other countries adopt similar measures.
In general, the request for reciprocation, which seeks to extend the scope of application of a macroprudential measure introduced in one country, is prompted by the significance of the financial services provided by foreign banks, either by cross-border lending or through local branches (which, unlike subsidiaries, remain subject to the jurisdiction of their home country authorities).
The voluntary reciprocity arrangements are essentially designed to increase the effectiveness of macroprudential measures, to prevent potential regulatory arbitrage by credit institutions and to ensure that the same risk receives equivalent treatment throughout the EU, irrespective of the Member State to which the agents concerned belong.
This type of reciprocity is not applied automatically. Decisions on voluntary reciprocity must be guided by prior analysis of materiality, to determine whether, for other countries’ banking sectors, the relevant risk exposures for the measure contribute significantly to the systemic risk identified by the macroprudential authority of the country activating the measure, and if so, to assess whether it is advisable to adopt an equivalent reciprocal measure.
This macroprudential cooperation arrangement between authorities in the EU is instrumented in European Systemic Risk Board Recommendation ESRB/2015/2 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures. The Banco de España has adopted the Recommendation and individually examines each request for reciprocation from other Member States.
Voluntary reciprocation requests
Requests for reciprocation from other Member States are set out in ESRB Recommendations, which describe the measure concerned and indicate the materiality threshold that should guide the decision by other countries’ macroprudential authorities on whether to voluntarily apply the measure.
Requests for voluntary reciprocation in the EU have been made for the following measures:
- 06.07.2023: Request by Sweden, to credit institutions using the IRB approach, to introduce credit institution-specific floor for the exposure-weighted average of the risk weights applied to their portfolios of exposures to corporates secured by commercial and residential properties, in accordance with Article 458 of Regulation (EU) No 575/2013. (Recommendation ESRB/2023/4 (88 KB))
- 06.03.2023: Request by Norway to apply a systemic risk buffer rate for exposures in that country, in accordance with Article 133 of Directive 2013/36/EU, and average risk weight floors for residential and commercial real estate exposures in that country to credit institutions using the internal ratings-based (IRB) approach for calculating regulatory capital requirements, in accordance with Article 458 of Regulation (EU) No 575/2013. (Recommendation ESRB/2023/1 (464 KB))
- 02.06.2022: Request by Germany to set, in accordance with Article 133 of Directive 2013/36/EU, a systemic risk buffer rate on all exposures secured by residential immovable property for which the collateral is located in Germany. (Recommendation ESRB/2022/4 (544 KB))
- 30.03.2022: Request by Belgium to set, in accordance with Article 133 of Directive 2013/36/EU, a systemic risk buffer rate on all IRB retail exposures to natural persons secured by residential immovable property for which the collateral is located in Belgium. (Recommendation ESRB/2022/3 (564 KB))
- 16.02.2022: Request by the Netherlands to introduce, in accordance with Article 458 of Regulation (EU) No 575/2013, a minimum average risk weight applied by credit institutions using the IRB approach in relation to their portfolios of exposures to natural persons secured by residential property located in the Netherlands. (Recommendation ESRB/2022/1 (573 KB))
- 16.02.2022: Request by Lithuania to set, in accordance with Article 133 of Directive 2013/36/EU, a systemic risk buffer rate for all retail exposures to natural persons in Lithuania that are secured by residential property. (Recommendation ESRB/2022/1 (573 KB))
- 24.03.2021: Request by Luxembourg to set legally binding loan-to-value (LTV) limits for new mortgage loans on residential real estate located in that country, with different LTV limits applicable to different categories of borrowers. (Recommendation ESRB/2021/2 (452 KB))
- 15.01.2019: Request by Sweden to set a specific floor for the average risk-weight on residential mortgage loans secured by housing in that country for credit institutions using the internal ratings-based (IRB) approach, in accordance with Article 458 of Regulation (EU) No 575/2013 (Recommendation ESRB/2019/1 (488 KB))
Assessment by the Banco de España of the requests for reciprocation
In the cases listed above the Banco de España has determined that the exposures of Spanish banks to each of these countries are below the materiality thresholds predefined in the relevant ESRB Recommendations for the purposes of informing the application of voluntary reciprocity. Accordingly, the Banco de España has not reciprocated any of these measures.