The European Central Bank publishes a focus article in the Macroeconomic Bulletin No. 23 proposing a simple and broad quantitative indicator to measure the effective macroprudential space. Macroprudential capital buffers are a key tool in the regulatory framework for banks, helping to ensure a stable and resilient financial system. Specifically, the indicator calculates the nominal amount of risk-based capital buffers that authorities can release and that banks can use without breaching parallel minimum requirements. It can thus be understood as a measure of effectively releasable capital buffers, expressed as a percentage of banks' risk-weighted assets.
In order to fulfil their objectives, buffers must be usable to absorb losses in times of stress, but experience shows that banks may be either unwilling or unable to fully utilise their buffer range. Going forward, the proposed indicator of effectively releasable capital buffers can help to inform related policy discussions and may be enhanced further. Importantly, this focus article only considers constraints on effective macroprudential space stemming from the application of the leverage ratio. In practice, there are also other factors that can constrain the full use of capital released under the risk-based framework. For example, banks generally wish to maintain a safety margin on top of minimum requirements.
ECB, December 2023 - Read the full report for more details.
See also:
- National macroprudential institutional framework (ESRB)
- Calibrating Macroprudential Policies in Europe: Considerations Amid Rising Housing Market Vulnerability (IMF, March 2023)
- Review of the EU Macroprudential Framework for the Banking Sector (ESRB, Concept Note, March 2022)
