European Systemic Risk Board

SUMMARY OF:

Regulation (EU) No 1092/2010 on macro-prudential oversight of the financial system and the establishment of a European Systemic Risk Board

WHAT IS THE AIM OF THE REGULATION?

As amended by Regulation (EU) 2019/2176, it establishes the European Systemic Risk Board (ESRB) to provide the macro-prudential oversight of the European Union’s (EU) financial system and to contribute to preventing or mitigating systemic risks* in the EU as a whole or in parts thereof. The ESRB identifies and discusses financial stability risks regardless of their origin.

The ESRB is established as part of the new European System of Financial Supervision, which also includes:

the European Banking Authority;
the European Insurance and Occupational Pensions Authority;
the European Securities and Markets Authority;
the Joint Committee of European Supervisory Authorities;
the supervisory authorities in the EU Member States.

This supervisory architecture also includes Regulation (EU) No 1096/2010, which gives the European Central Bank (ECB) certain specific tasks to support the ESRB.

KEY POINTS

Mandate, objectives and tasks

The ESRB is based in Frankfurt am Main (Germany). It is responsible for monitoring and analysing risk in the financial system as a whole (also known as macro-prudential oversight). To achieve this, the ESRB in particular:

identifies systemic risks and classifies them according to their priority;
issues warnings where systemic risks are deemed to be significant and makes them public if necessary;
recommends remedial action in response to risks identified;
can transmit a confidential warning and assessment to the Council of the European Union when it considers that an emergency situation is likely to occur;
monitors the measures taken in response to warnings and recommendations;
coordinates with international financial organisations like the International Monetary Fund and the Financial Stability Board.

Organisation and governance

The ESRB has the following structure:

a General Board that ensures the performance of tasks by taking the necessary decisions, chaired by the President of the ECB;
a Steering Committee that assists in the decision-making process;
a Secretariat responsible for day-to-day business and providing support;
an Advisory Scientific Committee and an Advisory Technical Committee to provide advice and assistance.

The ESRB’s chair represents it externally; it also has two vice-chairs. The ECB provides the ESRB with analytical, statistical, logistical and administrative support by running its Secretariat.

The Supervisory Board of the ECB and the Single Resolution Board each send a representative to the General Board (with no voting rights). To avoid political interference, no member of the General Board may hold governmental office in a Member State.

Warnings and recommendations

In the event of significant systemic risks to its objective, the ESRB provides warnings and, where appropriate, issues recommendations for remedial action, including legislative initiatives.

These warnings or recommendations are addressed in particular to:

the EU as a whole;
one or more Member States;
the ECB for the banking macro-prudential supervision tasks conferred upon it;
one or more European supervisory authorities;
one or more national supervisory authorities;
one or more national authorities designated for the application of measures aimed at addressing systemic or macro-prudential risk;
the European Commission in respect of relevant EU legislation;
resolution authorities designated by Member States; or
the Single Resolution Board.

ESRB recommendations

Addressees of ESRB recommendations must comply or provide an explanation for any inaction. If the ESRB decides that its recommendation has not been followed or that addressees have not provided adequate justification for their inaction, it confidentially informs the addressees, the European Parliament, the Council and the relevant European supervisory authorities.

The further evolution of the European surveillance system

As the 2008 financial crisis evolved and with the worsening sovereign debt crisis in the euro area in 2010–2011, it became necessary to further integrate the euro area’s banking systems. This led to the EU’s banking union initiative.

A review of Regulation (EU) No 1092/2010’s operation took place in 2013. This ultimately resulted in the amendments introduced in Regulation (EU) 2019/2176. These adapted the ESRB’s governance to cover the operation, since 2014, of:

a Single Supervisory Mechanism, placing the ECB as the central supervisor for euro-area banks (over 2,000 banks)(non-euro-area countries may also decide to join); and
a Single Resolution Mechanism, the objective of which is to ensure the orderly resolution of failing banks covered by the Single Supervisory Mechanism without using taxpayers’ money.

The changes introduced by Regulation (EU) 2019/2176 also relate to the rules on reducing risks in the EU’s banking sector. These have been constantly evolving over time and include:

the capital requirements directive (Directive 2013/36/EU – see summary) and regulation (Regulation (EU) No 575/ 2013 – see summary);
the bank recovery and resolution directive (Directive 2014/59/EU – see summary);
the single resolution mechanism regulation (as amended by Regulation (EU) 2019/877 – see summary);
deposit guarantee schemes (Directive 2014/49/EU – see summary), which protect deposits held by individuals and companies;
the directive on non-performing loans (Directive (EU) 2021/2167 – see summary).

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 16 December 2010.

BACKGROUND

For further information, see:

Banking and finance (European Commission)
Banking union (European Commission)
Banking union (European Central Bank)
What is the capital markets union? (European Commission)
European system of financial supervision (European Commission)
Mission and establishment (European Systemic Risk Board).

KEY TERMS

Systemic risk. A risk of disruption in the financial system with the potential to have serious negative consequences for the real economy of the EU or of one or more of its Member States and for the functioning of the internal market. All types of financial intermediaries, markets and infrastructure may be potentially systemically important to some degree.

MAIN DOCUMENT

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 (OJ L 331, 15.12.2010, pp. 1–11).

Successive amendments to Regulation (EU) No 1092/2010 have been incorporated in the original text. This consolidated version is of documentary value only.