The European Systemic Risk
International Association of
Risk and Compliance Professionals (IARCP)
What is the European Systemic
Risk Board (ESRB)?
22 September 2010, European Parliament:
At the plenary session (a full session of the European Parliament)
we had the final decision.
There are established
three new EU-wide authorities to
supervise the banking sector, the financial markets and the
insurance and pensions industry, and the European Systemic Risk
• To establish the European Insurance and Occupational
Authority (passed by 597 votes to 29)
• To establish the
European Systemic Risk Board (passed by 587 votes to 29)
To establish the European Banking Authority (passed by 587 votes
• To establish the European Securities and Markets
Authority (passed by 588 votes to 29)
Read more about the
European Systemic Risk Board
European Systemic Risk Board (ESRB) with
the US Financial Stability Oversight Council
created by the US Dodd-Frank Act:
The current financial crisis has highlighted weaknesses in the
EU's supervisory framework,
remains fragmented along national lines
despite the substantial progress achieved in financial-market
integration and the increased importance of cross-border entities.
Against this background, President Barroso requested a
group of high level experts, chaired by the former Managing
Director of the International Monetary Fund (IMF),
Mr. Jacques de Larosière, to make
recommendations with a view to establishing a more efficient,
integrated and sustainable supervisory framework.
key recommendations of the de Larosière
group focus on:
Establishing a European Systemic Risk Board (ESRB)
would be responsible for macro-prudential
oversight of the financial system within the Community in order to
prevent or mitigate systemic risks,
to avoid episodes of widespread financial distress, contribute to
a smooth functioning of the Internal Market and ensure a
contribution of the financial sector to economic
(ii) Establishing a European
System of Financial Supervisors (ESFS), consisting of a
network of national financial supervisors
working in tandem with new European Supervisory Authorities
(ESAs), created by the transformation of existing European
supervisory committees [These are the Committee of European
Banking Supervisors (CEBS), the Committee of European Insurance
and Occupational Pensions Supervisors (CEIOPS) and the Committee
of European Securities Regulators (CESR)]
a European Banking Authority (EBA), a European Securities and
Markets Authority (ESMA), and a European Insurance and
Occupational Pensions Authority (EIOPA).
should be built on shared and mutually-reinforcing
responsibilities, combining nationally-based
supervision of firms with specific tasks at the European level.
The ESFS would also foster harmonised rules and
coherent supervisory practice and enforcement.
March 2009, the Commission and European
Council broadly endorsed the recommendations of the de Larosiere
On 27 May 2009, the Commission published a
Communication on Financial Supervision in the EU, describing in
detail how these recommendations could be put into effect,
focusing in particular on the establishment of the proposed ESFS
The Ecofin Council of 9 June 2009 adopted
detailed conclusions, in which it agreed with the objectives laid
down in the Commission Communication and stressed that financial
stability, regulation and supervision in the EU must be enhanced
in an ambitious way.
The European Council of 18-19 June
2009 subsequently confirmed that the May Commission Communication
and the Ecofin Council conclusions established the way forward in
establishing a new framework for micro- and macro-prudential
The European Council requested that the
Commission should present all necessary proposals by early autumn
2009 at the latest so that the new framework would be fully in
place in the course of 2010.
Legal elements of the proposal
Only with arrangements in place that properly acknowledge the
interdependence between micro- and
macro-prudential risks can all stakeholders, e.g. financial
institutions, investors and consumers, have sufficient confidence
to engage in cross-border financial activities.
in the past, the focus of prudential supervision has been
exclusively at the micro-level, with
supervisors assessing the balance sheets of individual financial
institutions without due consideration for interactions between
institutions and between institutions and the broader financial
Providing this broader perspective is the
responsibility of macro-prudential supervisors.
supervisors shall monitor and assess potential financial-stability
risks arising from developments that can impact on a sectoral
level or at the level of the financial system as a whole.
By addressing such risks, the ESRB would be an essential building
block for an integrated EU supervisory structure necessary to
promote timely and consistent policy responses among the Member
States thus preventing diverging approaches and so improve the
functioning of the Internal Market.
ESRB is established on the basis of Article
95 of the EC Treaty as a body without legal personality.
This legal basis allows the ESRB to
have the core features outlined above and to have a mandate
covering the whole financial sector without exceptions.
It allows moreover the ESRB, together with the ESFS, to form a
common innovative framework for financial supervision, while
maintaining a clear distinction of responsibilities between the
ESRB and the other bodies.
The Regulation establishing the
ESRB is completed by a Council decision which confers on the
European Central Bank (ECB) the task of ensuring the Secretariat
of the ESRB.
will provide the administrative, logistical, statistical and
analytical support to the ESRB.
will implement for the first time Article
105(6) of the Treaty, which foresees the possibility for
the Council, acting unanimously on a proposal from the Commission
and after consulting the ECB and receiving the assent of the
European Parliament to confer upon the ECB specific tasks related
to prudential supervision.
The budgetary cost related to the ESRB will
be borne by the ECB and will not have
any direct implication for the Community budget.
of such support will depend on the extent to which the existing
staff and resources of the ECB can be used to fulfil the tasks of
the Secretariat of the ESRB.
Council Regulation is required to establish the ESRB as a
new European body, independent from existing
The ESRB is an entirely new European
body with no precedent, which shall be
responsible for macro-prudential oversight.
objective of the ESRB shall be threefold:
• It shall develop a European macro-prudential perspective to
address the problem of fragmented individual risk analysis at
• It shall enhance the effectiveness of
early warning mechanisms by improving the interaction between
micro-and macro-prudential analysis.
The soundness of
individual firms was too often supervised in isolation with little
focus on the degree of interdependence within the financial
• It shall allow for risk assessments to be
translated into action by the relevant authorities.
the wide scope and the sensitivity of its missions, the ESRB shall
not be conceived as a body with legal
personality and binding powers but rather as a body drawing its
legitimacy from its reputation for independent judgements, high
quality analysis and sharpness in its conclusions.
The main decision-making body of the ESRB
will be the General Board.
The composition of the
General Board is a key issue for the effectiveness of the ESRB.
The choice is made to ensure a significant representation
of central Banks.
In most Member States,
central banks have some degree of
responsibility for macro-prudential oversight of the
Because of this responsibility and acquired
expertise, central banks are well placed to
contribute to the analysis of the impact on financial
stability of the inter-linkages between the financial sector and
the broader macroeconomic environment.
analytical work and logistical support
to the ESRB will be provided
Secretariat, which will be
the European Central Bank. Granting the Secretariat to the ECB will allow the ESRB to exploit
the ECB's in-depth macro-prudential expertise and its central role
in the EU monetary system. In cooperation with national central
banks, the European Central Bank compiles and disseminates a wide
range of monetary statistics and indicators regarding financial
The European Central Bank and the Eurosystem
monitor cyclical and structural developments in the euro area/EU
banking sector as well as in other financial sectors to assess the
possible vulnerabilities in the financial sector and its
resilience to potential shocks.
and powers of the ESRB
The ESRB will
not have any binding powers to impose
measures on Member States or national authorities.
It has been conceived as a "reputational"
body with a high level composition that should influence
the actions of policy makers and supervisors by means of its moral
To this end, it will not only provide
high quality assessment
macroprudential situation but it may also
issue risk warnings and recommendations
which identify the
potential unbalances in the financial system which are likely to
increase systemic risks and the appropriate remedial actions.
The ESRB will have a broad scope of activity, not limited to a
specific type of entity or market.
recommendations may address any aspect of the financial system
which may generate a systemic risk.
It will also cooperate with the relevant
international financial institutions (IMF, FSB…) and third
countries bodies on issues related to macro-prudential oversight.
This proposal being
Article 95 of the Treaty, it is relevant for the European
Economic Area (EEA).
The modalities of cooperation between
the EFTA States participating in the EEA and the ESRB will be
discussed in the EEA Joint Committee.
Warnings and recommendations
essential role of the ESRB is to
risks with a systemic dimension and prevent or mitigate their
impact on the financial system within the EU.
this end, the ESRB may issue
These warnings should prompt early responses to
avoid the build-up of wider problems and eventually a future
If necessary, the ESRB
also recommend specific actions to address any identified
ESRB recommendations will
be legally binding.
the addressees of recommendations cannot remain passive towards a
risk which has been identified and are
expected to react in
If the addressee agrees with a
recommendation, it must communicate all the actions undertaken to
follow what is prescribed in the recommendation.
If the addressee does
not agree with a recommendation and chooses not to act, the
reasons for inaction must be properly explained.
Hence, recommendations issued by the ESRB
cannot be simply ignored.
The ESRB shall
decide on a case by case basis whether
warnings and recommendations should be made public.
On the one hand, the publication of a
recommendation may increase the pressure for the prompt corrective
On the other hand, it could trigger adverse
Given the sensitive
judgement to be made in deciding on the publication of warnings
and recommendations, such decisions should be made on a case by
Moreover, it seems appropriate that
warnings and recommendations should not be
made public unless a qualified majority of two-thirds of the
General Board decides otherwise.
The addressees of
warnings and recommendations can be the Community as a whole, one
or more Member States, one or more European Supervisory
Authorities, and one or more national supervisory authorities.
All warnings and recommendations must be transmitted to the
Council, while those related to supervisory issues should also be
transmitted to the relevant ESA.
The transmission to the
Council and to the ESAs of warnings and recommendations is not
intended as a way to water down their content, but aims on the
contrary at increasing the moral pressure
on the addressee to act or explain and offering the
possibility to the Council to comment it.
Access to information
interconnectedness of financial institutions and markets implies
that the monitoring and assessment of potential systemic risks
should be based on a broad set of relevant macroeconomic and
micro-financial data and indicators.
should therefore have access to all the
information necessary to perform its duties while preserving the
confidentiality of these data. The ESRB will be able to rely on the broad set of data already
collected through the
Eurosystem by the ECB on Monetary and
Additionally to fulfil its tasks
and ensure the necessary consistency between the micro-supervisors
and the ESRB, the
ESRB, through its secretariat, will also be
able to request the ESAs to provide information in summary or
Should this information be not available
(or not made available), the ESRB will have the possibility to
request data directly from national supervisory authorities,
national central banks (NCBs) or other authorities of Member
The regulation furthermore
creates a general obligation on the ESAs, the NCBs and the Member
States to provide to the ESRB all the information needed for the
fulfilment of its tasks, thus guaranteeing a wide access to the
data needed for the macro-prudential analysis.
some individual institutions can be systemic in nature (because of
their size, their interconnectedness with other financial
institutions or their risk profile), the ESRB – through its
secretariat - shall also have access to individual data upon a
reasoned request to the ESAs.
Relationship with the ESFS
The proposed framework for EU
supervision can only work if the ESRB and ESFS cooperate
Indeed, the objective of the reform is to ensure a smoother
interaction of supervision at the macro-prudential and
In fulfilling its role as macroprudential supervisor,
the ESRB will need a timely flow of
harmonised micro-level data, while micro-prudential supervision by
national authorities will benefit from the ESRB’s insights into
the macro-prudential environment.
also specify the procedures to be followed by the ESAs to act upon
recommendations by the ESRB and how the ESAs should use their
powers to ensure timely follow-up to recommendations addressed to
more competent national supervisory authorities.
The Members of the
General Board of the ESRB and the staff working for the ESRB shall
be subject to the obligation of professional
secrecy. Any confidential information received by Members of the General
Board or by the persons who work in connection with the ESRB shall
not be released outside except in summary or collective form so
that individual institutions cannot be identified.
confidentiality rules apply notably to the ECB staff as the ECB
will provide the Secretariat to the ESRB. In this respect,
information acquired by the ECB in its role of Secretariat to the
ESRB, shall only be used for the fulfilment of ESRB tasks.
In line with the existence practice in the EU institutions,
the persons who have worked in connection with the ESRB will still
be bound by the obligation of confidentiality, even after their
duties have ceased.
The addressees, the Council and the
ESAs shall also take the measures necessary for the protection of
the confidential nature of the warnings and recommendations.
The internal organisation of the ESRB
The ESRB shall be composed of:
(i) a General Board;
(ii) a Steering Committee and
(iii) a Secretariat.
The General Board is
the decision making body of the ESRB and as such, will be
responsible for the adoption of the warnings and recommendations
described in section 6.2.1 of this explanatory memorandum.
The members of the General Board
– the Governors of national central banks;
– the President and the vice-President of the ECB;
– a Member of the European Commission;
– the Chairpersons of the
The members of the General
Board without voting rights are:
– one high level representative per Member State of the
competent national supervisory authorities;
– the President of the Economic and Financial Committee.
The representative of the national
supervisory authorities may rotate depending on the matters
that are being discussed (this rotation will be needed in a large
number of Member States, where there are different bodies for
supervising for instance the financial and the insurance sector).
The members of the Board shall act impartially.
implies that when performing activities related to the ESRB, they
shall neither follow instructions nor take into account the
individual interests of any Member State.
a crucial requirement, as the interests of an individual Member
State may not always coincide with the ESRB's main objective,
maintaining financial stability in the European Union as a whole.
The members of the General Board with voting rights
shall each have one vote.
decisions of the General Board will be adopted by simple majority,
(except for the decision to make a warning or recommendation
public, which requires a qualified majority of two-thirds of the
votes. In line with the common practice, a quorum is needed for
The General Board shall meet
at least 4 times per year.
The meetings shall be convened on the initiative of the Chair or
at the request of one third of the Members with voting rights.
The Chair will be
elected for 5 years from among the
Members of the General Board of the ESRB which are also Members of
the General Council of the ECB.
The Chair will preside the
General Board as well as the Steering Committee and instruct the
Secretariat of the ESRB on behalf of the General Board.
The Chair shall be able to convene extraordinary meetings of the
General Board on its own initiative. As regards voting modalities
within the General Board, the Chair will have a casting vote in
the event of a tie.
The Chair shall represent the ESRB
The Steering Committee
Given the size of the General Board –which will
comprise a total of 61 members-,
Steering Committee will assist the decision-making process of the
The Steering Committee will
meetings of the General Board, review the documents to be
discussed and monitor the progress of the ESRB's on-going work.
The Steering Committee will comprise the
Chair and Vice-Chair of the General Board, the Chairpersons of the
three ESAs, the President of the EFC, the Member of the Commission
and five members of the General Board which are also members of
the General Council of the ECB (12 members).
The ECB will
ensure the Secretariat to the ESRB. The Secretariat will receive
instructions directly from the Chair of the General Board.
The Head of the Secretariat will be
appointed by the ECB, in consultation with the General Board of
The Secretariat will provide
analytical, statistical, administrative and
logistical support to the ESRB, including the preparation
of the meetings, the collection and processing of qualitative and
quantitative information destined to the ESRB, the conduct of
analysis and assessments necessary for the fulfilment of the ESRB
The Secretariat will also provide support to the
work of the Advisory Technical Committee.
The Advisory Technical Committee and other
sources of advice
The role of the Advisory Technical
Committee (hereinafter, referred to as the "ATC") is to provide
advice and assistance to the General Board on the issues that are
within the scope of the ESRB, on request from the latter.
The members of the ATC
– one representative of each national
– one representative from the ECB
– one representative of the national
supervisory authority per Member State
– one representative of each European
– two representatives of the European
– one representative of the EFC.
The Chair of the ATC shall be appointed by the General Board
on a proposal from its Chair.
The representative of the
national supervisory authorities may rotate depending on the
matters that are being discussed.
The ESRB shall be accountable to
the European Parliament and to the Council and shall therefore
report to them at least annually. The European Parliament and the
Council may also require the ESRB to report more often.
Proposal for a REGULATION OF THE
EUROPEAN PARLIAMENT AND OF THE COUNCIL on Community macro
prudential oversight of the financial system and establishing a
European Systemic Risk Board
THE EUROPEAN PARLIAMENT
AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the
Treaty establishing the European Community, and in particular
Article 95 thereof,
Having regard to the proposal from the
Having regard to the opinion of the European
Having regard to the opinion of the European
Economic and Social Committee,
Acting in accordance with
the procedure laid down in Article 251 of the Treaty,
(1) The financial crisis has revealed important shortcomings
in financial supervision, which has failed to prevent the
accumulation of excessive risks within the financial system and
has in particular highlighted the weaknesses of the existing
(2) In November 2008, the
Commission mandated a High Level Group chaired by Mr Jacques de
Larosière (the "de Larosière Group") to make recommendations on
how to strengthen European supervisory arrangements with a view to
better protecting its citizens and rebuilding trust in the
(3) In its final report presented on 25
February 2009, the de Larosière Group recommended, among other
things, the establishment of a Community level body charged with
overseeing risk in the financial system as a whole.
its Communication entitled "Driving European Recovery" of 4 March
20096, the Commission welcomed and broadly supported the
recommendations of the de Larosière Group. At its meeting of 19
and 20 March 2009, the European Council agreed on the need to
improve the regulation and supervision of financial institutions
within the EU and to use the report from the de Larosière Group as
a basis for action.
(5) In its Communication entitled
"European Financial Supervision" of 27 May 20097, the Commission
set out a series of reforms to the current arrangements for
safeguarding financial stability at the EU level, notably
including the creation of a European Systemic Risk Board (ESRB)
responsible for macro-prudential oversight.
The Council on
9 June 2009 and the European Council at its meeting of 18 and 19
June supported the view of the Commission and welcomed the
Commission's intention to bring forward legislative proposals so
that the new framework is in place in the course of 2010. In line
with the views of the Commission, it concluded inter alia that the
ECB “should provide analytical, statistical, administrative and
logistical support to the ESRB, also drawing on technical advice
from national Central Banks and supervisors”.
present Community arrangements place too little emphasis on
macro-prudential analysis remains fragmented, and is conducted by
various authorities at different levels with no mechanism to
ensure that macro-prudential risks are adequately identified and
that warnings and
recommendations are issued clearly, followed
up and translated into action.
(7) The Community needs a
specific body responsible for macro-prudential oversight across
the EU financial system, which would identify risks to financial
stability and, where necessary, issue risk warnings and
recommendations for action to address such risks. Consequently, a
European Systemic Risk Board (ESRB) should be established as a new
independent body, responsible for conducting macro-prudential
oversight at the European level.
(8) The ESRB should, where
appropriate, issue warnings and recommendations of a general
nature concerning the Community as a whole, individual Member
States or groups of Member States, with a specified timeline for
the relevant policy response.
(9) In order to increase
their weight and legitimacy, such warnings and recommendations
should be transmitted through the Council and, where appropriate,
the European Banking Authority established by Regulation (EC) No
…/… the European Parliament and of the Council8, the European
Securities and Markets Authority established by Regulation (EC) No
…/… of the European Parliament and of the Council9, and the
European Insurance or the Occupational Pension Authority
established by Regulation (EC) No …/…of the European Parliament
and of the Council.
(10) The ESRB should also monitor
compliance with its recommendations, based on reports from
addressees, in order to ensure that its warnings and
recommendations are effectively followed. Addressees of
recommendations should act on them unless inaction can be
adequately justified ("act or explain" mechanism).
ESRB should decide whether a recommendation should be kept
confidential or made public, bearing in mind that public
disclosure can help to foster compliance with the recommendations
in certain circumstances.
(12) The ESRB should report to
the European Parliament and the Council at least annually, and
more frequently in the event of widespread financial distress.
(13) The ECB and National Central banks should have a leading
role in macro-prudential oversight because of their expertise and
existing responsibilities in the area of financial stability.
The participation of micro-prudential supervisors in the work
of the ESRB is essential to ensure that assessment of
macro-prudential risk is based on complete and accurate
information about developments in the financial system.
Accordingly, the chairpersons of the European Supervisory
Authorities should be members with voting rights, while one
national supervisor per Member State should attend as Member
without voting rights.
(14) The participation of a Member
of the Commission will help to establish a link with the
macro-economic and financial surveillance of the Community, while
the presence of the Chairman of the Economic and Financial
Committee reflects the role of finance ministries in safeguarding
(15) It is essential that the members
of the ESRB perform their duties impartially and only consider the
financial stability of the European Union as a whole.
Voting on warnings and recommendations within the ESRB should not
be weighted and decisions should as a rule be taken by a simple
(16) The interconnectedness of financial
institutions and markets implies that the monitoring and
assessment of potential systemic risks should be based on a broad
set of relevant macro-economic and micro-financial data and
The ESRB should therefore have access to all
the information necessary to perform its duties while preserving
the confidentiality of these data as required.
participants can provide valuable input to the understanding of
the evolutions affecting the financial system. Where appropriate,
the ESRB should therefore consult private sector stakeholders
(financial sector representatives, consumer associations, user
groups in the financial services area established by the
Commission or Community legislation…) and give them a fair
opportunity to provide their comments.
(18) Given the
integration of international financial markets at international
level and the contagion risk of financial crises, the ESRB should
coordinate with the International Monetary Fund and the newly
established Financial Stability Board, which are expected to
provide early warnings of macro-prudential risks at the global
(19) The establishment of the ESRB should contribute
directly to achieving the objectives of the Internal Market. The
Community macro prudential oversight of the financial system is an
integral part of the overall new supervisory arrangements in the
Community as the macro-prudential aspect is closely linked to the
micro-prudential supervisory tasks attributed to the European
Only with arrangements in place
that properly acknowledge the interdependence between micro and
macro-prudential risks can all stakeholders have sufficient
confidence to engage in cross-border financial activities.
The ESRB should monitor and assess risks to financial
stability arising from developments that can impact on a sectoral
level or at the level of the financial system as a whole.
By addressing such risks, the ESRB should directly contribute to
an integrated Community supervisory structure necessary to promote
timely and consistent policy responses among the Member States,
thus preventing diverging approaches and improving the functioning
of the Internal Market.
(20) Since an effective
macro-prudential oversight of the Community financial system
cannot be sufficiently achieved by the Member States because of
the integration of the European financial markets, the Community
may adopt measures in accordance with the principle of
subsidiarity, as set out in Article 5 of the Treaty.
accordance with the principle of proportionality, as set out in
that Article, this Regulation does not go beyond what is necessary
to achieve those objectives,
ADOPTED THIS REGULATION:
A European Systemic
Risk Board, hereinafter referred to as 'ESRB', is established.
For the purpose of this Regulation, the following definitions
(a) 'financial institution' means any
undertaking whose main business is to take deposits, grant
credits, provide insurance services or other financial services to
its clients or members or engage in financial investment or
trading activities on its own account.
system' means all financial institutions, markets and market
Mission, Objectives and Tasks
1. The ESRB shall be
responsible for the macro-prudential oversight of the financial
system within the Community in order to prevent or mitigate
systemic risks within the financial system, so as to avoid
episodes of widespread financial distress, contribute to a smooth
functioning of the Internal Market and ensure a sustainable
contribution of the financial sector to economic growth.
For the purposes of paragraph 1, the ESRB shall carry out the
(a) Determine and/or collect, as
appropriate, and analyse all the information relevant for the
mission described in paragraph 1;
(b) identify and
prioritise such risks;
(c) issue warnings where risks are
deemed to be significant;
(d) issue recommendations for
remedial action where appropriate;
(e) monitor the
follow-up to warnings and recommendations;
closely with the European System of Financial Supervisors and,
where appropriate, provide the European Supervisory Authorities
with the information on systemic risks required for the
achievement of their tasks;
(g) coordinate with
international institutions, particularly the International
Monetary Fund and the Financial Stability Board as well as the
relevant bodies in third countries on matters related to
(h) carry out other related
tasks as specified in Community legislation.
1. The ESRB shall have a General Board, a
Steering Committee and a Secretariat.
2. The General Board
shall take the decisions necessary to ensure the performance of
the tasks entrusted to the ESRB.
3. The Steering Committee
shall assist in the decision-making process of the ESRB by
supporting the preparation of the meetings of the General Board,
reviewing the documents to be discussed and monitoring the
progress of the ESRB's ongoing work.
4. The Secretariat
shall provide analytical, statistical, administrative and
logistical support to the ESRB under the direction of the Chair of
the General Board in accordance with Council Decision
5. The ESRB shall be supported by the
Advisory Technical Committee referred to in Article 12, which
shall provide advice and assistance on issues relevant to the work
of the ESRB, when requested.
1. The Chair and Vice-Chair of the
ESRB shall be elected for a term of 5 years by and from the
Members of the General Board who are also members of the General
Council of the ECB. They may be re-elected.
2. The Chair
shall preside at the meetings of the General Board and the
3. The Vice-Chair shall preside at the
General Board and/or the Steering Committee when the Chair cannot
participate in a meeting.
4. If the term of office of the
Members of the General Council of the ECB elected as Chair or
Vice-Chair ends before the completion of the 5 year term or if for
any reason the Chair or Vice Chair are unable to discharge their
duties, a new Chair or Vice Chair shall be elected in accordance
with paragraph 1.
5. The Chair shall represent the ESRB
1. The following persons shall be Members of
the General Board with voting rights
(a) the President and
the Vice-President of the ECB;
(b) the Governors of the
national central banks;
(c) a Member of the European
(d) the Chairperson of the European Banking
(e) the Chairperson of the European Insurance
and Occupational Pensions Authority;
(f) the Chairperson of
the European Securities and Markets Authority.
following persons shall be Members of the General Board without
(a) one high level representative per Member
State of the competent national supervisory authorities;
(b) the President of the Economic and Financial Committee.
3. When the agenda of a meeting contains points pertaining to the
competence of several national supervisory authorities in the same
Member State, the respective high level representative shall only
participate in the discussion on items falling under his or her
4. The General Board shall establish the Rules
of Procedure for the ESRB.
1. When participating in the activities
of the General Board and of the Steering Committee or when
conducting any other activity relating to the ESRB, the Members of
the ESRB shall perform their duties impartially and shall neither
seek nor take instructions from Member States.
States shall not seek to influence the members of the ESRB in the
performance of their ESRB tasks.
1. Members of the
General Board of the ESRB and any other persons who work or who
have worked for or in connection with the ESRB (including the
relevant staff of central banks, Advisory Technical Committee,
ESAs and competent national supervisory authorities of the Member
States), shall be required not to disclose information covered by
professional secrecy, even after their duties have ceased.
2. Information received by Members of the ESRB may only be used in
the course of their duties and in performing the tasks set out in
3. Without prejudice to Article 16 and the
application of criminal law, any confidential information received
by the persons referred to in paragraph 1 whilst performing their
duties, may not be divulged to any person or authority whatsoever,
except in summary or aggregate form, such that individual
financial institutions cannot be identified.
4. The ESRB
shall agree with the European Supervisory Authorities on specific
confidentiality procedures to safeguard information on individual
financial institutions, or information where individual financial
institutions can be identified.
Meetings of the General Board
Ordinary plenary meetings of the General Board shall be convened
by the Chair of the General Board and shall occur at least four
times a year. Extraordinary meetings may be convened at the
initiative of the Chair of the General Board or at the request of
at least one third of the Members with voting rights.
Each Member shall be present in person at the meetings of the
General Board and may not be represented.
3. By way of
derogation from paragraph 2, a Member who is prevented from
attending the meetings for a prolonged period may appoint an
That Member may also be replaced by a person
who has been formally appointed under the rules governing
institution concerned for the substitution of representatives on a
4. The proceedings of the meetings shall
modalities of the General Board
1. Each Member of
the General Board with a voting right shall have one vote.
2. The General Board shall act by a simple majority of Members
present with voting rights. In the event of a tie, the Chair shall
have the casting vote.
3. A quorum of two-thirds of the
Members with voting rights is needed for any vote to be taken by
the General Board.
If the quorum is not met, the Chair may
convene an extraordinary meeting at which decisions may be taken
without regard to the quorum.
1. The Steering Committee
shall be composed of the following:
(a) the Chair of the
(b) the Vice-Chair of the ESRB;
(c) five other
members of the General Board who are also members of the General
Council of the ECB.
They shall be elected by and from the
Members of the General Board who are also members of the General
Council of the ECB for a period of two years.
(d) a Member
of the European Commission;
(e) the Chairperson of the
European Banking Authority;
(f) the Chairperson of the
European Insurance and Occupational Pensions Authority;
the Chairperson of the European Securities and Markets Authority;
(h) the President of the Economic and Financial Committee.
Any vacancy for an elected Member of the Steering Committee
shall be filled by the election of a new Member by the General
2. Meetings of the Steering Committee shall be
convened by the Chair at least quarterly, before each meeting of
the General Board. The Chair may also convene ad-hoc meetings.
1. The Advisory Technical Committee shall be composed of the
(a) a representative of each national central
bank and a representative of the ECB;
representative per Member State of the competent national
(c) one representative of the
European Banking Authority;
(d) one representative of the
European Insurance and Occupational Pensions Authority;
one representative of the European Securities and Markets
(f) two representatives of the Commission;
(g) one representative of the Economic and Financial
The supervisory authorities of each Member State
shall choose one representative in the Committee.
agenda of a meeting contains points pertaining to the competence
of several national supervisory authorities in the same Member
State, the respective representative shall participate only for
the agenda items falling under his
Chair of the Advisory Technical Committee shall be appointed by
the General Board following a proposal from the Chair of the
3. The Committee shall perform the tasks
referred to in Article 4(5) at the request of the Chair of the
4. The ESRB Secretariat shall support the
work of the Advisory Technical Committee and the Head of the
Secretariat shall participate in the meetings.
Other sources of advice
In performing its tasks, the ESRB shall seek, where
appropriate, the advice of relevant private sector stakeholders.
Access to documents
1. Regulation (EC) No 1049/2001 of the European Parliament and
of the Council shall apply to documents held by the ESRB.
2. The General Board shall adopt the practical arrangements for
implementing Regulation (EC) No 1049/2001 within six months after
the entry into force of this Regulation.
3. Decisions taken
by the ESRB pursuant to Article 8 of Regulation (EC) No 1049/2001
may form the subject of a complaint to the Ombudsman or of an
action before the Court of Justice, under the conditions laid down
in Articles 195 and 230 of the EC Treaty respectively.
Collection and exchange of information
1. The ESRB
shall provide the European Supervisory Authorities with the
information on systemic risks necessary for the achievement of
2. The European Supervisory Authorities, the
national central banks and Member States shall cooperate closely
with the ESRB and provide all the information necessary for the
fulfilment of its tasks in accordance with Community legislation.
3. The ESRB may request information from the European
Supervisory Authorities in summary or collective form, such that
individual financial institutions cannot be identified.
the requested data are not available to those Authorities or are
not made available in a timely manner, the ESRB may request the
data from national supervisory authorities, national central banks
or other authorities of Member States.
4. The ESRB may
address a reasoned request to the European Supervisory Authorities
to provide data that are not in summary or collective form.
5. Before requesting information in accordance with paragraphs
3 and 4, the ESRB shall duly consult the relevant European
Supervisory Authority in order to ensure that the request is
1. When significant risks to the
achievement of the objective in article 3(1) are identified, the
ESRB shall provide warnings and, where appropriate, issue
recommendations for remedial action.
2. Warnings or
recommendations issued by the ESRB in accordance with points (c)
and (d) of Article 3(2) may be either of a general or specific
nature and shall be addressed to the Community as a whole or to
one or more Member States, or to one or more of the European
Supervisory Authorities, or to one or more national supervisory
Recommendations shall include a specified
timeline for the policy response. Recommendations may also be
addressed to the Commission in respect of the relevant Community
3. The warnings or recommendations shall also
be transmitted to the Council and, where addressed to one or more
national supervisory authority, to the European Supervisory
4. Any Member of the Board may request a vote
on a draft warning or a draft recommendation at any time.
Follow-up of the ESRB
1. Where a recommendation referred
to in letter (d) of Article 3(2) is addressed to one or more
Member States, one or more European Supervisory Authorities, or
one or more national supervisory authorities, the addressees shall
communicate the actions undertaken in response to the
recommendations to the ESRB or explain why they have not acted.
The Council and, where relevant, the European Supervisory
Authorities shall be informed.
2. If the ESRB decides that
its recommendation has not been followed and that the addressees
have failed to explain their inaction appropriately, it shall
inform the Council and, where relevant, the European Supervisory
Public warnings and recommendations
1. The General
Board of the ESRB shall decide whether a warning or a
recommendation should be made public on a case- by-case basis.
By derogation to Article 10(2), a qualified majority of
two-thirds of the votes is needed to make a
2. Where the General Board of the
ESRB decides to make a warning or recommendation public, it shall
inform the addressee(s) in advance.
3. Where the general
Board of the ESRB decides not to make a warning or a
recommendation public, the addressee and where appropriate, the
Council and the European Supervisory Authorities, shall take all
the measures necessary for the protection of their confidential
The President of the Council may decide not to
circulate a warning or recommendation to the other Members of the
1. The ESRB shall report at least annually to the European
Parliament and to the Council.
2. The ESRB shall also
examine specific issues at the invitation of the Council or the
The Council shall examine this Regulation on
the basis of a report from the Commission three years after its
entry into force and shall determine whether the missions and
organisation of the ESRB need to be reviewed after having received
an opinion from the ECB.
Entry into force
This Regulation shall enter into force on the day following
that of its publication in the Official Journal of the European
This Regulation shall be binding in its entirety and
directly applicable in all Member States.
New financial supervision architecture:
Q&A on the European Systemic Risk Board / the
macro-supervision part of the package
Why do we need a European Systemic Risk Board (ESRB)?
We need a European Union-wide system to be able to assess and
prevent potential risks to financial stability in the EU properly
The rapid propagation of the financial crisis from the US to
Europe in 2007/2008 highlighted the present weaknesses in
monitoring and assessing potential threats and risks arising from
the interaction between macro-economic developments and the
financial system in the EU but also worldwide.
This is why the Commission proposes the creation of the ESRB and
its close cooperation with the Financial Stability Board and the
International Monetary Fund whose powers in terms of international
financial stability and economic surveillance are also being
2. What kind of risks will the ESRB monitor?
The notion of systemic risk is wide.
The ESRB will have to monitor the soundness of the whole financial
This can cover very different areas, from the financial situation
of the banks to the potential existence of asset bubbles or the
good functioning of the market infrastructures.
The ESRB will have to identify all the potential risks and, as the
intention is not to end up with an endless list, it will also have
to prioritise them and issue warnings when it thinks that the
risks are significant.
3. How will
the ESRB deal with the risks it will identify?
the ESRB identifies risks to stability it shall issue
recommendations to the country or group of countries concerned.
If the addressee agrees with the recommendation, it must
communicate the actions undertaken to deal with the potential
problem. If it does not agree and chooses not to act, the reasons
for that must also be properly explained.
If the ESRB feels that the explanations are not convincing, it
shall inform the Council of ministers.
In general, the ESRB
recommendations will also be sent to the Council. In some cases,
the Council itself will be the addressee.
It is notably the case of the warnings or recommendations
addressed to the Community as a whole. But in most cases, the
warnings and recommendations will be transmitted to the relevant
addressee and to the Council.
This transmission of warnings and recommendations is not intended
as a filter or as a way to water down their content, but aims on
the contrary at increasing the moral pressure on the recipient to
act or explain.
The quality of the ESRB work will provide a
significant moral incentive to follow up on its recommendations or
give convincing reasons for not to.
procedures are also foreseen. For instance, when a national
supervisory authority intends to deviate from an ESRB
recommendation, it must first discuss and justify it with the
competent European authority and will have to take into account
its views before answering the ESRB.
And if the ESRB feels that the explanations are not convincing, it
shall inform the Council.
4. Why is it proposed to
give central banks, including the European Central Bank, a
prominent role within the ESRB?
have always played a key role in macro-prudential supervision and
in many countries they are responsible fully or in part for the
supervision of individual institutions.
The European System of Central Banks (ESCB) includes all 27
national Central Banks of the European Union and the 27 Governors
sit in the General Council of the ECB. Being at the heart of the
EU monetary system and having wide ranging expertise in the
macro-prudential field, the ESCB holds a unique and privileged
position for analysing and assessing the linkages between
developments in the financial sector and the macroeconomic
performance of EU economies.
It is therefore appropriate for the ESCB to have a prominent role
in the European Systemic Risk Board.
5. The Secretariat of
the ESRB will be entrusted to the ECB. Does this mean that non
euro area Central Banks will be excluded from the preparation of
the ESRB work?
No, the ESRB will include the
central bank governors of all 27 Member States.
The ECB employs at all levels of its hierarchy citizens of all
Member States, including from those who have not adopted the euro.
Seconded experts from non euro area Central Banks will participate
within the ECB to the work of the ESRB secretariat.
Will the warnings and recommendations be made public and if not
The issues potentially addressed in the
warnings and recommendations will be extremely sensitive and we
must be careful about adverse effects, such as the warnings
turning into self-fulfilling prophecies by frightening financial
The decision whether or not to publish will, therefore, require a
case-by-case decision after a careful assessment of the potential
7. What form do the legislative texts take
and when do you expect them to be approved?
The creation of macro-prudential supervision at the EU level and
the establishment of the ESRB are foreseen in a draft Regulation
based on Article 95 of the EC Treaty, that
requires co-decision by the Council and the European Parliament.
The Regulation is completed by a draft Council Decision which
confers on the ECB the task of ensuring the Secretariat of the
Before making the legislative proposals, the
Commission conducted extensive consultation of interested parties
both after the publication of the report of the Larosière Group
and of the May 2009 Communication, which outlined the new
8. The latest crisis has
shown that systemic risks can be global in nature. Why not leave
monitoring of systemic risks to the recently enhanced and renamed
Financial Stability Board?
The existence of
an internal market in the EU and the increasing political and
financial integration of the EU require an EU-level institution to
supervise and monitor risks to the financial system.
The US has also announced a systemic risk
monitoring body, to be created within the Federal Reserve.
The ESRB will, of course, liaise closely
with the new Financial Stability Board and with the other relevant
international bodies, contributing to a stronger global framework
for risk monitoring and more stable financial markets.
This global network ought to monitor systemic risks more
effectively and detect potential crises earlier to be able to
defuse them or, in the very least, mitigate their impact.
The ESRB will play a key role in this network and fills an
important gap in financial supervision in the EU.
Will the ESRB lead to a greater administrative burden for
No. Most data needed
by the ESRB will be provided to it by the European Supervisory
Authorities (ESAs) using information which they already possess.
Before asking for information, the ESRB will furthermore check
with the ESAs that its request is proportionate.
will also not present any extra cost for the Community budget as
it will build, to the extent possible, on existing staff and
resources of the European System of Central Banks, with a
secretariat provided by the ECB
10. The ESRB will
potentially deal with very sensitive market information. How will
the confidentiality of the data be safeguarded?
specific articles in the Regulation and the Decision aimed at
guaranteeing effective procedures for handling confidential data.
Specific detailed procedures for the transmission of the
information will furthermore be agreed between the ESRB and the
European Supervisory Authorities. Last but not least, one should
keep in mind that all the Members of the ESRB are used to dealing
with highly confidential data on a daily basis.
11. Who will be the chair of the ESRB?
chair will be elected by the members of the General Board, the
main decision-making body of the ESRB, for a period of 5 years,
renewable. The General Board will be composed of all the Governors
of the national Central Banks in the EU, the President and the
Vice-President of the ECB, a Member of the European Commission and
the Chairpersons of the three European Supervisory Authorities.
National supervisors and the President of the Economic and
Financial Committee will also form part of the Board, but without
Why will national supervisors have no voting right in the General
The presence of the national supervisors
inside the ESRB improves the flow of information and allows a
constant exchange of views between the actors having a macro angle
(the ECB, the National Central Banks, the Commission…) and those
working with a micro-prudential perspective.
But national supervisors are in charge of
micro-supervision of individual banks, and not of the
stability of the financial system as a whole. This difference in
the approach, mission and analytical angle explains the difference
in the voting rights.
13. The ESRB will have
over 60 institutions represented in it. Is this not too cumbersome
to be effective?
A broad representation of
institutions within the ESRB is necessary to ensure a global
macro-prudential perspective in the ESRB’s risk assessments.
The ESRB must include all those who have relevant information and
expertise to contribute.
These include the governors of national central banks, the new
European Supervisory Authorities, and national supervisors.
However, a steering committee
(consisting of the ESRB chairperson and vice-chairperson, five
additional central bank members of the ESRB, the chairpersons of
the new European Supervisory Authorities, the President of the EFC
and the Commission member) will prepare and ensure efficient ESRB
14. What will be the role of the Advisory
Technical Committee (ATC)?
The composition of
the ESRB will be very high level (Governors, Commissioner,
Chairman of the European Authorities…etc).
While the secretariat will be able in most cases to prepare all
the discussions and provide the necessary analysis, it can happen
that the ESRB needs to draw on more specific competences than the
ones usually available at the ECB.
The ATC will be able to bring this technical expertise on issues
for which it might be needed to go beyond the support provided by
the secretariat (e.g., problems linked to the supervision of the