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Tasks on financial stability and macroprudential policy

Financial stability

The ECB has two main tasks in the field of financial stability:

To identify risks

The ECB, together with the other central banks of the Eurosystem and the European System of Central Banks, monitors cyclical and structural developments in the banking sectors of the euro area and the EU as a whole, as well as other financial sectors.

To assess risks

The potential impact of systemic risks on the stability of the euro area/EU financial system and its degree of resilience is assessed by using quantitative tools, such as the ECB’s macro stress-testing framework, network analysis and other related modelling tools. A macro stress-testing framework is often used to assess in a forward-looking manner the resilience of the banking sector to (adverse) macroeconomic and financial developments.

In the field of financial stability, the ECB also provides analytical support to the European Systemic Risk Board.

Macroprudential policy

With the entry into force of the SSM Regulation on 4 November 2014, the ECB was given macroprudential tools to tackle the emergence of possible systemic risks in the financial system. The ECB has two mandates in the field of macroprudential policy:

To apply more stringent measures

The ECB may, instead of the national authorities, apply higher requirements for capital buffers than those applied by the national authorities and apply more stringent measures aimed at addressing systemic or macroprudential risks, subject to the procedures set out in relevant EU law. For example, the ECB may – after notifying national authorities – apply higher requirements for banks’:

  • counter-cyclical capital buffers
  • systemic risk buffers (if implemented in national law)
  • capital surcharges of systemically important institutions
  • risk weights on real estate and intra financial sector exposures
  • limits on large exposures
  • additional disclosure requirements

To comment and object

National authorities have to notify the ECB when they intend to implement or change a macroprudential measure. The ECB assesses the planned measures and can object to them. National authorities consider the ECB’s comments before proceeding with the decision.

Financial regulation

The regulation of financial institutions and markets forms the foundation for macroprudential policy. The ECB analyses initiatives concerning financial regulation, financial supervision, financial stability arrangements (e.g. financial crisis management and resolution) and other areas of financial services (e.g. accounting) introduced by European and global regulators and supervisors, and gives advice from a macroprudential and financial stability perspective. In particular, the ECB provides regulatory and supervisory input, via ECB/Eurosystem contributions, to legislative proposals at the national, international and EU levels.

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