EBA proposes appropriate methodology to calibrate O-SII buffer rates

The European Banking Authority (EBA) proposed today the implementation of an EU-wide floor methodology to calibrate buffer rates of Other Systemically Important Institutions (O-SIIs). The proposed methodology included in the Report aims at  strengthening the stability of the banking sector and avoiding the under-calibration of O-SII capital buffer rates, while allowing the relevant authorities to consider national banking sector specificities. The proposed methodology will inform the European Commission’s further legislative initiatives that could shape the introduction of such an EU-wide floor.

With the proposed floor methodology, all EU institutions identified as O-SII will be assigned a non-zero percent buffer rate. National authorities will still retain the ability to set higher O-SII buffer rates than the prescribed floor and are encouraged to do so where deemed appropriate.

At the moment, there is no harmonised methodology at EU level to calibrate O-SII buffer rates. Therefore, the recommendations included in the Report do not bear immediate consequences for the EU banking sector and should be seen as a preparatory step to inform EU co-legislators in view of legislative initiatives to design and operationalise an EU-wide methodology for the calibration of O-SII buffer rates.

The EBA also published a user-friendly data visualisation tool that will allow stakeholders to better understand and navigate the charts, tables and most of the country-level data contributing to the findings and conclusions included in the Report.

Note to the editors

• The EBA is mandated in article 131 of fifth Capital Requirement Directive (CRD V) to report to the European Commission, by end 2020, on the appropriate methodology to calibrate O-SII buffer rates. The publication of this Report and submission to the Commission fulfils this mandate.
• The rationale for this mandate is the heterogeneity of O-SII buffer rates set at the national level by relevant authorities. Similar O-SII scores computed according to the EBA Guidelines of 2014 have often led to different levels of O-SII buffer rates, which under the CRD IV could range from 0% to 2%.