The EU/Eurozone framework for macroprudential policy

It recommended inter
alia that the existing arrangements be complemented by an EU-level macroprudential body with a
mandate to oversee risk in the financial system as a whole. Building on the report, the European
Commission (EC) proposed the establishment of the ESRB, which was created in December 2010. In
addition, the EU member states have adopted macroprudential arrangements at the national level.
Within the EU, responsibility for adopting measures necessary to maintain financial stability is
primarily vested with national authorities, which have the responsibility to take the initiative in this
regard and to act in response to ESRB recommendations and warnings. The main reason for
entrusting macroprudential policy primarily at national level is that, notwithstanding EU financial
integration, the financial and macroeconomic cycles as well as the structural characteristics of
financial systems still differ substantially among EU and even euro area countries. It is therefore
considered appropriate for different countries to operate somewhat distinct macroprudential policies
to control (for example) the timing of aggregate credit expansion and contraction within their borders.
The ESRB is playing a key coordination role with respect to macroprudential policy within the EU.

It is helping to shape the overall framework through a recommendation to member states to establish
national macroprudential authorities (December 2011), a follow-up recommendation on objectives
and instruments (April 2013), and a Handbook (March 2014) to assist macroprudential authorities to
operationalise these instruments. Over the longer term, it will help coordinate interventions: the ESRB
is to be notified prior to the use of macroprudential instruments defined in EU legislation and provide
“opinions” or “recommendations” regarding the proper use of proposed measures.8