Question ID
2017_3229
Legal act
Directive 2013/36/EU (CRD)
Topic
Other issues
Article
134
Paragraph
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not relevant
Name of institution / submitter
The Danish Ministry of Industry, Business and Financial Affairs
Country of incorporation / residence
Denmark
Type of submitter
Competent authority
Subject matter
The question relates to systemic risk buffers and whether they can be additive
Question

According to Article 134 CRD can two systemic risk buffers (SRBs) be additive e.g. in situations where a home country already has a SRB in place and wants to reciprocate a SRB from another Member State?

Background on the question

In Denmark systemically important institutions are subject to a SRB of up to 3 percent when fully phased in. In the process of evaluating The European Systemic Risk Boards recommendation of EU-wide reciprocation of Estonia’s 1 percent SRB we are unsure whether Article 134 in CRD IV allows us to add the Estonian SRB applied to Estonian exposures in Estonia to the Danish SRB.
It is considered that the 2 percent cap on the O-SII buffer is insufficient to cover the risks related to the “systemicness” for smaller Member States with large financial institutions like Denmark. Therefore, in Denmark the SRB is used to cover the risks related to the “systemicness” of the systemic important institutions authorised in Denmark.

Submission date
Final publishing date
Final answer

The Systemic Risk Buffer (SRB) is an exposure-based measure, as Article 133 CRD refers solely to exposures. Articles 133(3) and 133 (8) CRD refer to "exposures", without indicating the type of risk giving rise to such exposures. Moreover, the SRB is not envisaged by the legislator to be applied beyond the geographical scope set out in Article 133(8) CRD IV.

According to Article 134(1) CRD, other Member States may recognise the SRB rate set in accordance with Article 133 CRD and may apply that buffer rate to domestically authorised institutions for the exposures located in the Member State that sets that buffer rate.

However, since an SRB rate is based only on exposures and not on risks, if a reciprocating Member State has already activated an SRB covering the same exposures subject to reciprocation, the two SRB rates cannot be cumulated. Instead they can be combined non-cumulatively. In other words, the higher-of rule applies:

- If the SRB rate applied by the reciprocating Member State on the exposures subject to reciprocation is higher than the SRB rate to be reciprocated, the reciprocation is unnecessary.

- If instead the SRB rate on the exposures subject to reciprocation is lower than the SRB rate to be reciprocated, then the reciprocating Member State may decide to recognise this higher rate on the exposures subject to reciprocation.

The answer to this specific issue is without prejudice to the use of other macro-prudential instruments.

Disclaimer:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Financial Stability, Financial services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.

Status
Final Q&A
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Note to Q&A

Update 26.03.2021: This Q&A has not yet been reviewed by the European Commission in the light of the changes introduced to Directive 2013/36/EU (CRD).

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.