- THE SUPERVISION BLOG
Towards a more consistent EU macroprudential framework
19 September 2025
The macroprudential framework developed in the aftermath of the global financial crisis has lived up to the promise of making the financial system more resilient. However, recent experience also suggests that there is room for improvement in its design and operation.
Macroprudential policy in the EU
Macroprudential frameworks were developed from the viewpoint that regulatory and supervisory policies focused on ensuring the individual stability of banks – although necessary – had not been sufficient to prevent the build-up of risk at a system-wide level. Reforms agreed by the Basel Committee on Banking Supervision introduced countercyclical capital buffers and requirements for systemically important banks, in addition to stricter microprudential supervisory requirements. These macroprudential buffers sought to boost banks’ resilience by increasing their loss absorption capacity and, in so doing, safeguard their ability to support the real economy during downturns. Banks deemed systemically relevant were subject to higher buffers, making their failure even less likely. The broad aim of macroprudential frameworks is, as the European Systemic Risk Board (ESRB) put it, “to contribute to the safeguard of the stability of the financial system as a whole, including by strengthening the resilience of the financial system and decreasing the build-up of systemic risks, thereby ensuring a sustainable contribution of the financial sector to economic growth[1]”. The macro- and microprudential approaches thus complement one another, and both are essential for maintaining overall financial stability.[2]
In the EU, the macroprudential framework operates in a mostly decentralised system, with national authorities remaining competent for country-level decisions while still bound by EU rules in certain areas. For example, national authorities have significant flexibility in the setting of banks’ macroprudential capital buffers, but if certain thresholds are crossed or criteria are met, the European Commission has to approve any higher buffer rates. Similarly, the application of certain national measures needs to be approved (via non-objection) by the Council of the European Union, based on a proposal from the Commission, if these measures are stricter than the harmonised prudential requirements set out in EU legislation. To inform its view in such cases, the Commission relies on ESRB and European Banking Authority opinions assessing whether the measures are effective and proportionate in addressing the risk at hand and do not hinder the functioning of the single market.[3] But there are also other macroprudential tools, known as “borrower-based measures”[4], which are governed by national law and not harmonised across the EU. National authorities have the discretion to apply these measures as long as they are provided for in national legislation.
The ESRB retains responsibility for the macroprudential oversight of the entire EU financial system to guard against systemic risk, through “soft law” instruments such as the issuance of warnings and recommendations. Within the Single Supervisory Mechanism, responsibility for macroprudential policy is shared between the relevant national authorities and the ECB. Whenever the former intend to apply capital buffers or other macroprudential measures for addressing systemic risks, as enshrined in EU law, they must notify the ECB of this intention and duly consider any objections raised by the latter before they can take a final decision. Moreover, where necessary, the ECB has the power to “top up” such macroprudential measures, for instance to overcome possible inaction bias at the national level.
Overall, the design of the EU macroprudential framework attempts to reconcile the possibility that banking systems, financial cycles and risks may differ across Member States with the fact that the single market needs a certain degree of harmonisation to function properly. The result is a multi-layered institutional set-up where macroprudential responsibilities are often shared among several stakeholders.
The incorporation of the macroprudential dimension into national and supranational policymaking has been an integral part of the overall effort to strengthen the resilience of the EU banking sector in the wake of the global financial crisis. This has buttressed the banking system’s capacity to continue lending and providing services to the real economy when shocks materialise. However, recent experience suggests that there is room for improvement in the design and operation of the macroprudential framework. As pointed out by the European Commission, this includes areas such as missing instruments, the functioning of the buffer framework and questions surrounding the integrity of the internal market.[5] The ECB has supported the Commission’s proposals to facilitate and simplify the use of macroprudential tools, including as regards banks’ capital buffers, with a view to enhancing consistency in the application of the macroprudential toolkit[6].
Challenges under the current framework
The pandemic highlighted two key lessons concerning the freeing-up of banks’ capital buffers.[7] First, the effectiveness of buffer releases in promoting bank lending depends on the distance of banks’ capital ratios to the threshold restricting profit distributions when their capital falls below their combined buffer requirement.[8] Second, buffer release on rainy days is conditional on a previous and significant build-up during good times. National macroprudential authorities have thus adopted a more proactive stance towards this matter in recent years[9], a line which the ECB has also supported[10].
While welcome, increased macroprudential policy activity since the pandemic has also brought about challenges related to heterogeneity and level playing-field issues. Heterogeneity in the framework has increased because some jurisdictions have opted to use certain instruments (such as systemic risk buffers, whether on all assets or just for specific sectors), while others have not, or have done so in a different manner. Questions about the degree to which macroprudential measures taken in one country should be “reciprocated” by other EU Member States to address cross-border banking exposures or exposures through bank branches have thus become more pressing over time.[11] Increased heterogeneity carries a risk of complicating banks’ capital planning, especially for banks that are active in several jurisdictions. Cross-border banks therefore need to take these differences into account in their capital allocation and risk management processes.
In addition, level playing-field issues have arisen, as banks of a similar size and footprint for the banking union or the single market as a whole may be subject to different buffer requirements. This is because different macroprudential authorities apply different approaches and calibration methods to the setting of buffers, leading to differences across countries and between banks’ subsidiaries and branches. As pointed out by both the European Commission[12] and the ECB[13], in the case of buffers applied to other systemically important banks this heterogeneity cannot be fully explained by country-specific factors such as banking market size or concentration, thus giving rise to concerns over competitive distortions and arbitrariness in prudential requirements.
Towards a more consistent policy implementation
The experience of recent years therefore suggests that there is a strong case to strengthen the coordination of macroprudential policy in the EU as a whole, especially through increased harmonisation and simplification of the framework. There are at least two steps which are likely to be important in this regard.
The first is to foster convergence in the use of macroprudential instruments through commonly agreed criteria, approaches and methodologies, especially when it comes to setting banks’ capital buffers. The ECB recently enhanced the floor methodology it uses to assess capital buffers for other systemically important institutions so that it also takes into account their systemic importance for the banking union as a whole.[14] The ECB and ESRB have also promoted a shared understanding of how authorities have applied a “positive neutral” approach in their setting of countercyclical capital buffers.[15] Looking ahead, efforts to achieve convergence in other domains would help avoid potential unwarranted overlaps or gaps in risk coverage. The ESRB plays an important part in discussing consistency issues in the wider EU framework. A recent report by a high-level group reviewing the ESRB’s functions has advised it to implement a framework that provides a holistic assessment of systemic risk in the EU[16], a recommendation which the ECB fully supports. That would also pave the way for discussions at the ESRB table on a more harmonised application of macroprudential measures across the EU. Within the Single Supervisory Mechanism, these efforts would be grounded in regular discussions at the ECB Macroprudential Forum, which brings together the members of the Governing Council and the Supervisory Board.
The second step is for policymakers to be mindful of the effectiveness and respective purposes of micro- and macroprudential policy elements, as well as the interactions between them, as they feed into banks’ overall capital requirements. Coupled with a more consistent application of macroprudential measures at European level, promoting exchanges on banks’ aggregate capital requirements at relevant fora would go a long way towards “internalising” the potential conflicts of interest that can arise from different authorities independently seeking to fulfil their respective mandates in a largely decentralised institutional framework. In an interconnected economy like the EU, damage to financial stability and the real economy can only be avoided collectively – not at the cost of one another.
The good news is that much can already be done in the existing legislative and institutional setting, without altering the balance of competencies between the various stakeholders tasked with micro- and macroprudential supervision. Improving the clarity of the legislation in certain areas, including through better definitions of which macroprudential tools are meant to be used for which purpose, would undoubtedly help avoid potential overlaps in the system and prevent situations in which similar risks are treated in a different manner in different countries. This would improve the comparability of macroprudential measures across countries while still allowing national authorities scope to take local conditions into account. A targeted streamlining of the regulatory framework for banks that does not come at the expense of their overall resilience[17] would help reduce complexity. And completing the banking union through a common insurance scheme for bank deposits and an enhanced crisis management framework would make the macroprudential framework more effective. However, pending such changes, there is still significant room to work within the boundaries of the current framework to achieve a more harmonised macroprudential stance in the EU.
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Buch, C. (2025), “Stress tests in uncertain times: assessing banks’ resilience to external shocks”, The Supervision Blog, ECB, 5 September.
Typical examples of such measures are those taken under Article 458 of the Capital Requirements Regulation, including increasing banks’ risk weights on their real estate exposures and tightening the limits for large exposures.
Examples of such measures include loan-to-value limits, which restrict the loan amount that can be granted by banks relative to the property’s value, and debt-to-income or debt service-to-income limits, which cap a borrower's total debt or debt service payments relative to their income.
European Commission (2021), Review of the EU Macroprudential Framework: Call for Advice, July.
See European Commission (2021), Review of the EU Macroprudential Framework: Call for Advice, July; and European Central Bank (2022), ECB Response to the European Commission’s call for advice on the review of the EU macroprudential framework, March.
See Couaillier, C., Lo Duca, M., Reghezza, A., Rodriguez d’Acri, C. and Scopelliti, A. (2021), “Bank capital buffers and lending in the euro area during the pandemic”, Financial Stability Review, ECB, November; and Behn, M., Rancoita, E. and Rodriguez d’Acri, C. (2020), “Macroprudential capital buffers – objectives and usability”, Macroprudential Bulletin, Issue 11, ECB, October. During the pandemic, banks’ unwillingness to use buffers seems to have been related to potential market stigma and concerns about their future ability to distribute dividends. In addition, banks might have been unable to use buffers due to prudential or resolution requirements which could have become binding before buffers were exhausted. Government support programmes to banks’ customers also played a role in this regard, helping to contain banks’ overall losses. Taken together, this implied that few banks needed to draw down on their buffers.
The combined buffer requirement is the total amount of Common Equity Tier 1 capital that a bank must hold to meet various capital buffers, including the capital conservation buffer, countercyclical capital buffer, systemic risk buffer, global systemically important bank buffer, and other systemically important institution buffer, as applicable.
Before 2019 only ten European Economic Area countries had activated their countercyclical capital buffer and 15 had activated their systemic risk capital buffer, whereas since 2020 this has grown to 21 and 19 respectively. See the ESRB’s overview of national macroprudential measures and European Central Bank and European Systemic Risk Board (2025), Using the countercyclical capital buffer to build resilience early in the cycle, January.
European Central Bank (2025), Governing Council statement on macroprudential policies, 7 July; and European Central Bank (2024), Governing Council statement on macroprudential policies, 28 June. For countries participating in the Single Supervisory Mechanism, macroprudential policy is a shared responsibility between national authorities and the ECB. For a description of the current framework, see Constâncio et al. (2019), “Macroprudential policy at the ECB: Institutional framework, strategy, analytical tools and policies”, Occasional Paper Series, No 227, ECB, Frankfurt am Main, July.
In EU law, reciprocity is mandatory for banks’ countercyclical capital buffers up to a 2.5% threshold. However, reciprocation of banks’ systemic risk buffers (or sectoral systemic risk buffers) is voluntary, meaning that a Member State that implements such a measure can request the ESRB to recommend that other Member States also adopt the same measure to address risks related to specific bank exposures. Before 2019, only six reciprocation requests had been made and followed up on by European Economic Area countries, whereas since 2020 this number has grown to 18. For more information, see the ESRB’s web page on reciprocation of measures.
European Central Bank (2022), ECB response to the European Commission’s call for advice on the review of the EU macroprudential framework, March. See also Greco, M., Grodzicki, M. and Vogel, U. (2025), “Heterogeneity in buffers set for systemically important banks in the European banking union”, Macroprudential Bulletin, Issue 30, ECB, August.
European Central Bank (2024), Governing Council statement on macroprudential policies – the ECB’s framework for assessing capital buffers of other systemically important institutions, December.
European Central Bank and European Systemic Risk Board (2025), Using the countercyclical capital buffer to build resilience early in the cycle, January.
European Systemic Risk Board (2024), Building on a decade of success, December.
Buch, C. (2025) “Simplification without deregulation: European supervision, regulation and reporting in a changing environment”, speech at the Goldman Sachs European Financials Conference, 11 June.