Where clearer information is disclosed, risk awareness can be promoted and market discipline can be enhanced. This enhances market confidence and safeguards financial stability, thereby avoiding market breakdowns such as that of the interbank market after the collapse of Lehman Brothers. On the other hand, macro- and micro-prudential disclosure requirements may not always be in line. An aggregate improvement in disclosure may, for instance, reveal ailing banks, leading to individual failures without systemic effects. In general, the available empirical evidence supports enhanced disclosure(24). In terms of legal implementation, the draft CRR foresees the possibility of enhancing disclosure requirements at the national level for macro-prudential purposes subject to a procedure at Union level.
Structural systemic risk buffer
The upcoming CRD IV is expected to introduce a systemic risk buffer to prevent and mitigate structural risk (hereafter ‘the structural buffer’), subject to a procedure at Union level. The structural buffer can be used to strengthen the resilience of the banking system, or its subsets, to possible shocks stemming from structural systemic risk. This risk can arise from changes in legislation or accounting standards, cyclical spillovers from the real economy, a large financial system relative to GDP or financial innovation that increases complexity.
The structural buffer increases resilience through an increase in loss-absorption capacity. It shifts more downside risk to equity holders and increases solvency, thereby reducing the likelihood of structural risk materialising. Possible negative effects of the structural buffer include a loss of the cross-border level playing field, a decline in banks’ voluntary capital and leakages to the shadow banking system. However, higher structural buffers also restrict leverage and risk-taking.
It is difficult to pinpoint indicators for applying the structural buffer; the aforementioned structural vulnerabilities can serve as a guide. When experience in the application of the structural buffer has been gained, an analysis of its capacity to address structural risks should be carried out.
Complementarity
As the aforementioned measures aim to increase the overall resilience of financial infrastructure, they interact with many other instruments. For instance, DGSs could complement liquidity instruments by ensuring a stable deposit funding base. They could also complement the structural buffer (and other capital-based instruments) as they reduce the impact of failures. Margin and haircut requirements for CCPs and for non-centrally cleared transactions should be aligned to ensure a level-playing field. Moreover, margin and haircut requirements (for both CCPs and other transactions) could complement leverage ratios by reducing excessive leverage. As disclosure reduces information asymmetries, it has the potential to improve market confidence and increase market liquidity.
The effect of the structural buffer can interact with the effects of other capital-based instruments such as the countercyclical buffers. Coordination is therefore necessary in deciding on the appropriate aggregate level of the capital requirements.
Attachment 2
Intermediate objectives of macro-prudential policy in insurance
Macro-prudential considerations in the field of insurance are still at the inception stage. There are a number of reasons for this:
— most insurance companies emerged from the crisis relatively unscathed,
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