The Bank of Italy's response to the European Commission's consultation on the review of the EU macroprudential frameworkfor the banking sector

The public consultation of the European Commission on the periodic review of the macroprudential provisions of the European Union for the banking sector was concluded on 18 March (the last review was carried out in 2016). The Bank of Italy participated in the consultation; the answers to the questions posed by the Commission, together with a summary of the main points, are available here.

The outbreak of the COVID-19 pandemic provided the first testing ground for evaluating the macroprudential framework during a period of stress, although the shock that hit the economy was different from what was envisaged in the original framework. Compared with the 2008 financial crisis, the banking system benefited, on the one hand, from the exceptional support measures taken by Member States and from the support of monetary policy and, on the other, from being in a position of greater strength following the implementation of the Basel III reforms. Macroprudential authorities also responded swiftly, releasing when possible the capital reserves already accumulated or postponing the entry into force of new capital buffers. These factors allowed credit institutions to continue supporting the flow of credit to the real economy. Also in light of the experience of the pandemic crisis, the Bank of Italy considers it useful to increase the share of capital buffers that can actually be released by the authorities in the event of exogenous shocks independent of the economic or financial cycle. To this end, for example, the possibility for the authorities to release, in whole or in part, the capital conservation buffer (CCoB) in particularly adverse circumstances could be introduced in the regulatory framework.

In the response to the consultation, greater flexibility is also hoped for in the process of setting the countercyclical capital buffer (CCyB), provided that it continues to remain based on the use of quantitative cyclical risk indicators, so as to maintain an adequate level of predictability and harmonization among EU countries. It would also be preferable not to use this specific buffer to address non-cyclical risks.

The Bank of Italy also welcomes harmonization at European level, albeit minimal, of the so-called borrower-based instruments (such as, for example, limits on the loan-to-value ratio) to be achieved on the basis of the recommendations already issued on the subject by the European Systemic Risk Board (ESRB). It is important, in any case, that the design, calibration and activation of these tools remain the exclusive purview of the national authorities.