The systemic risk buffer

CRD IV introduced the systemic risk buffer (SyRB) into regulatory practice. The SyRB can be applied across the board to all bank exposures (general SyRB) if those exposures give rise to structural systemic risks to financial stability. CRD V extended the scope of application of the SyRB to sectoral subsets of exposures (sectoral SyRB) and also allowed it to be applied to cyclical risks that cannot be covered by the countercyclical capital buffer.

The purpose of the SyRB is to mitigate the possible adverse effects of identified systemic risks on the financial system and the real economy. If a macroprudential policy authority concludes that their level poses a risk to financial stability, the application of the SyRB will enhance the banking sector’s capitalisation and increase its resilience to adverse shocks. It can to some extent also help reduce the growth or concentration of the exposures concerned in banks’ balance sheets. However, this is not its primary purpose.

The macroprudential authority may choose between the general and the sectoral SyRB depending on the specific sources of systemic risk. The sectoral SyRB can be applied to subsets of exposures that have a systemic dimension and thus constitute a risk to banking sector stability. EBA Guidelines (external link) set a common framework for determining subsets of exposures. According to these guidelines, competent authorities will define the exposure concerned on the basis of three main dimensions and, if deemed appropriate, three sub-dimensions.

Main dimensions and sub-dimensions for defining subsets of exposures

Main dimension Sub-dimension
Type of debtor or counterparty sector Economic activity
Type of exposure Risk profile
Type of collateral Geographical area

Source: EBA (2020)

The CNB regularly assesses the level of structural systemic risks and their possible implications for financial stability. According to the CNB’s analyses, the domestic banking sector is to a large extent vulnerable to certain systemic risks of a structural nature, which are primarily related to the Czech economy’s high degree of openness and high foreign trade concentration. If the CNB finds that these risks materially threaten the financial stability of the banking sector, it is ready to set a SyRB rate. In such case, the CNB would be ready to lower the SyRB rate or release the SyRB fully if systemic risks targeted by the SyRB materialise or diminish. Severely adverse economic developments at the global level could instigate the materialisation of such risks. However, the risks may also diminish gradually during a period when no systemic losses materialise.

The CNB has not identified any structural systemic risks necessitating the creation of an SyRB and is therefore not applying any general or sectoral SyRB at present.

Note: From 1 November 2014 to 1 October 2021, the CNB applied a general  SyRB (1-3%) to mitigate the risks associated with the systemic importance of banks. However, since the transposition of CRD V into Czech law on 1 October 2021, the CNB has been mitigating these risks using the capital buffer for other systemically important institutions.