Bank of Italy's response to the European Commission's consultation documenton the review of the EU macro-prudential policy framework

In October the European Commission’s consultation on the review of the EU macroprudential policy framework was concluded.

The Bank of Italy believes that, generally speaking, the macro-prudential framework for the EU banking sector is adequate, both in terms of flexibility and its range of instruments. There is, however, ample scope for enhancing it by increasing clarity and reducing complexity. Moreover, as the financial sector evolves and new sources of systemic risk materialize, it is important to periodically assess the adequacy of the common macro-prudential policy framework and, at the same time, provide enough room for instruments not harmonized by EU law.

In updating the regulatory framework for the banking sector, greater flexibility in macro-prudential instruments must be balanced by appropriate safeguards to preserve the integrity of the internal market and reduce the risk of ring-fencing. In order to reduce overlaps among policies and tools, the Bank of Italy believes that efforts should be made to coordinate micro- and macro-prudential policy responses more effectively and to enhance the overall consistency of the framework.

In revising the framework, a clearer distinction is needed between macro- and micro-prudential policies and tools, with a well-defined allocation of roles and responsibilities to the relevant authorities. Should conflicting policy objectives arise, coordination should be such as to give priority to the overarching objective of financial stability.