The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe T.D has agreed, following a request from the Central Bank of Ireland, to transpose the Systemic Risk Buffer (SyRB) into Irish law and designate the Central Bank with the powers to implement it at a future date. A Statutory Instrument will now be prepared for the Minister’s approval and signature.
The Systemic Risk Buffer (SyRB) is one of the four Capital Buffers provided for in the Capital Requirements Directive IV (CRD IV) and forms part of the Macroprudential Toolkit. The other buffers are the Capital Conservation Buffer, the Global/Other Systemically Important Institution Buffer and the Counter Cyclical Capital Buffer.
The Systemic Risk Buffer is designed to mitigate long-term, non-cyclical, systemic or macroprudential risks which may have serious negative consequences for the financial system and the real economy and which cannot be covered by other measures in the Macroprudential Toolkit. The Systemic Risk Buffer would allow the Central Bank to require banks to hold capital above the existing requirements to safeguard against risks which could cause significant damage to the financial system.
The introduction of the Systemic Risk Buffer is a national discretion for Member States, and to date the discretion was not exercised in Ireland. In April 2019 the Governor of the Central Bank wrote to the Minister for Finance requesting that he consider transposing the Systemic Risk Buffer into Irish law and designate the Central Bank with the powers necessary to implement it.
Commenting on today’s announcement, Minister Donohoe said
“Providing the Central Bank with the required power to impose the Systemic Risk Buffer means that the Bank will have the complete macroprudential toolkit at its disposal and this will enable the Bank to adequately assess and take appropriate measures to address the systemic risks faced by Ireland’s small highly globalised economy.
The Central Bank will be informed by best international practice in relating bank capital requirements to the underlying structural characteristics of the economy when deciding on the appropriate calibration and phase in period for a Systemic Risk Buffer.
Note to Editors:
- The Systemic Risk Buffer (SyRB) is one of the four Capital Buffers provided for in the Capital Requirements Directive IV (CRD IV) and forms part of the ‘Macroprudential Toolkit’. The SyRB can be used to address the build-up of systemic risks to the financial system.
- The Systemic Risk Buffer is designed to address the build-up of non-cyclical systemic or macroprudential risks not covered by the other buffers and which threaten the stability of the financial system in a Member State and the real economy.
- The Central Bank sought the power to activate the SyRB in their capacity as the national macroprudential authority. The Central Bank is requesting this power so that the Bank has the full ‘Macroprudential Toolkit’ available to assess, and take appropriate measures to address the systemic risks faced by Ireland.
- While the Minister has agreed to grant the power to the Central Bank to introduce the Systemic Risk Buffer, it does not mean that the Central Bank would automatically introduce a positive buffer rate. In assessing whether to set a positive SyRB rate, calibrate its level and determine the appropriate phase-in period, the Central Bank will be informed by best international practice in relating bank capital requirements to the underlying structural characteristics of the economy.
- The Central Bank have noted that the calibration and timing of any SyRB will inform, and be informed by, the calibration of other macroprudential instruments and with regard to the underlying structural characteristics of the economy.
- In terms of capital buffers, Irish banks are currently required to have in place a Capital Conservation Buffer of 2.5% and a Countercyclical Capital Buffer of 1% (from July 2019). *Certain banks designated by the Central Bank as Other Systemically Important Institutions are also required to hold an additional buffer entitled the Other Systemically Important Institution Buffer. Six banks regulated by the Central Bank are currently subject to an Other Systemically Important Institution Buffer ranging from 0% to 1.5%.
- The Department has published a paper which provides an overview of bank capital requirements and a description of the tools in the macroprudential toolkit. Please see:
Deborah Sweeney - Press Adviser to Minister Donohoe - 086 858 6878
Aidan Murphy - Press Officer, Department of Finance - 085 886 6667