Eurosystem report on strengthening the macroprudential framework for NBFI

The Eurosystem has published a report setting out targeted proposals to strengthen the macroprudential framework for non-bank financial intermediation (NBFI), aimed at addressing growing systemic risks arising from the sector's expansion and interconnectedness with banks.

The proposals include:

• Implementing internationally agreed reforms to the NBFI regulatory framework in the EU.
• Enhancing the macroprudential toolkit, including through the introduction of an explicit macroprudential tool for ex ante mitigation of the risk of liquidity mismatch in open-ended funds.
• Introducing system-wide stress testing (SWST) in Europe to identify and quantify short-term market and liquidity risks, while considering their interplay with solvency risk. The proposed SWST exercise would target the entities and markets that matter most for EU financial stability, with key markets in scope including: sovereign bond markets; unsecured short-term funding markets; covered and corporate bond markets; interest rate; and foreign exchange derivatives markets and repo markets.
• Enhancing NBFI data quality, access and sharing across authorities, including through targeted changes to the data access and sharing provisions of relevant EU legislation. The Eurosystem is also proposing a centralised data access and sharing mechanism, while maintaining direct data collection from NBFI entities at the national level.
• Strengthening macroprudential governance arrangements. The Eurosystem proposes that two elements be prioritised in the governance framework for NBFI macroprudential instruments: (i) reciprocation; and (ii) top-up powers.
• Introducing EU-level "top-up" powers to the European Securities and Markets Authority (in collaboration with the European Systemic Risk Board) to implement appropriate macro-prudential powers.

The report also sets out a medium-term roadmap for progressing this policy agenda. The goals include: (i) defining and delivering an NBFI data strategy; (ii) strengthening risk assessment and surveillance of NBFI activities; and (iii) progressing the policy framework, including the approach to evaluating regulatory interventions.

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