Euro Area: Publication of Financial Sector Assessment Program Documentation-Technical Note on Macroprudential Policy

This Technical Note on Macroprudential Policy examines the complex but IMF-aligned institutional framework in the Euro Area (EA). While the European Central Bank (ECB) and European Systemic Risk Board (ESRB) have robust frameworks for monitoring financial vulnerabilities, they need to further assess the links between banks and non-banks and address data gaps. The paper recommends that the Capital Requirements Directive should be revised to permit early activation of the countercyclical capital buffer even when cyclical systemic risks are not yet elevated. The ECB and ESRB should also promote consistent adoption of borrower-based measures across EU member states. Additionally, they should enhance the monitoring and assessment of vulnerabilities arising from bank-non-bank linkages, review member countries’ experiences with their institutional frameworks, and reassess compliance with revised recommendations to ensure timely and effective policy action. Authorities should streamline procedures for activating macroprudential tools and harmonize the mapping between banks’ O-SII scores and O-SII buffers to reduce heterogeneity, while allowing flexibility for member country-specific characteristics.