The European Banking Authority published a report on the cyclicality of banks' capital requirements. The report examines whether the EU's risk-sensitive capital requirements create unintended pro-cyclical effects and whether any remedial steps are necessary or justified. The EU's capital requirements framework is set out in the Capital Requirements Regulation and the Capital Requirements Directive, together known as CRD IV. CRR requires the European Commission to prepare a biennial report for the European Parliament and the Council of the European Union on the issue. This report from the EBA is intended to feed into that report.
The EBA concludes that the impact of the EU capital requirements framework on the EU economic cycle is limited and that there are no strong reasons for shifting from the risk-sensitive framework. The EBA notes that EU banking legislation provides tools for regulators to respond to any pro-cyclicality concerns, as appropriate, and recommends periodic monitoring of the potentially cyclical impact of the EU bank regulatory framework (not only regulatory capital) and further research into the effectiveness and efficiency of counter-cyclical instruments.
View the EBA's report.
