Brussels, 18 November 2014,Economic and Social Committee

The ESRB and its ASC

Daniel Gros

CEPS Director and ASC Member

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What is the ESRB ?

• Board responsible for macro-prudential oversight of EU financial system

• Key objective: to prevent and mitigate systemic risk and ensure a sustainable contribution of the financial sector to economic growth

• => FORWARD LOOKING!• Soft power: Warnings and recommendations (“act or

explain”)

ESRB public recommendations

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21 September 2011: FX lending risks

22 December 2011: US$ funding risk

22 December 2011: Macro-prudential mandates

20 December 2012: Money market funds (CNAV vs VNAV)

20 December 2012: Bank funding risk; asset encumbrance

4 April 2013: List of macro-prudential instruments

30 June 2014: CCB guidance

Recently legislated tasks for the ESRB

• Capital Requirements Directive (CRD):– Art. 133: recommendation on systemic risk buffer – Art. 135 and 138: guidance on counter-cyclical buffer

• Capital Requirements Regulation (CRR):– Art. 458: opinion on national macro-prudential measures– Art. 513: advice to EC for review of macro-prudential rules

• Alternative Investment Fund Managers Directive (AIFMD): – advice to ESMA in limiting leverage by individual funds– access to individual data

• European Market Infrastructure Regulation (EMIR):– access to individual data from trade repositories

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Composition of the General BoardChair

ECB President

ECB President and Vice-President

ESCB Governors

European Commission

Member

3 ESAs Chairs

ASC Chair and 2 Vice-Chairs

(M. Pagano, M. Hellwig, and A. Sapir)

ATC Chair(S. Ingves; elected)

Nat. supervisory authorities high-

level representative

EFC President

2nd Vice-ChairEBA/ESMA/EIOPA

1st Vice-ChairM. Carney (elected)

Central banks

Supervisors and

regulators

Sub-structures

Regula-tor

Min.

Finance

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ESRB sub-committees

General Board(Decision-making body)

Steering Committee(14 General Board members)

(prepares the meetings of the General Board)

Advisory Technical Committee(ECB, NCBs, national supervisory authority, 3 ESAs, EC, EFC, ASC)

(advice and assistance on issues relevant to the work of the ESRB NOT INDIPENDENT)

Secretariat(ensured by the ECB)

Advisory Scientific Committee(15 high-level experts with scientific skills and experience)

(advice and assistance on issues relevant to the work of the ESRB)INDIPENDENT

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Who currently sits on the ASC?Mostly academic ecnomists

Viral Acharya Leszek Balcerowicz Arnoud Boot Markus K. Brunnermeier Dario Focarelli Alberto Giovannini Daniel Gros Martin Hellwig Ross Levine Marco PaganoRichard Portes André Sapir Dirk Schoenmaker Charles Wyplosz

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What is the utility of the ASC?• Independent: no country bias; not subject to lobbies

• Expert: by regulation, ASC members are chosen for their financial expertise

• A broad church: the ASC comprises experts from academia, industry and civil society, knowledgeable in banking, markets, insurance, politics...

• Nimble: at 15 members, the size of the ASC is “just right” (not too big or small)

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What has the ASC done since 2011?• 15 meetings• Co-chaired 4 expert groups (on CDS, sovereign

exposures, shadow banking and interconnectedness)• Many interventions at General Board meetings• 5 ASC Reports

1. Forbearance (July 2012)2. Banking union (October 2012)3. SSM and macroprudential policy (September 2013)4. Is Europe overbanked? (June 2014)5. Macroprudential power allocation (November 2014)

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A taste of ASC influence:

135,000 downloads from ESRB website and cited publicly by Draghi, Nouy, Constâncio and Liikanen

Is Europe Overbanked?• Finds that EU banking became larger, more

levered and more concentrated over past 20 years• Banks in large banking systems take more risk

(individually and systemically)• Bank-based structures are bad for growth• Large universal banks pose more systemic risk

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Another test of ASC influence:

Announced publicly by Draghi in EP

Forthcoming report on regulatory treatment of sovereign exporsure (of banks)• Well known that that banks in Europe hold large

proportion of government debt on their balance sheet, mostly of their own government.

• Key issue: should (national) sovereign bonds be treated as risk free – especially in the euro area?

• Politically sensitive and economically important.

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What next for the ASC?

•A flavour of future challenges:– Identify the “next crisis”– Come to grips with data access challenges– Design macro-prudential policy for non-banks– Advise on bank-based macro-prudential policy within a

complex framework (national, SSM, EU)– Assess cross-border spill-overs of national macro-

prudential policies