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, for various reasons, are not 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.
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 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 exposed to systemic risks of a structural nature, which are primarily related to the Czech economy’s great openness, high foreign trade concentration and strong concentration of production and employment by economic activity. The potential costs associated with the transformation of the energy-intensive domestic economy are also a significant contributor to systemic structural risk. Growth in cyber risk and ongoing technological change may also increase the banking sector’s vulnerability under certain conditions. The likelihood of the related risks materialising is increased against the backdrop of ongoing deglobalisation and decarbonisation and rising geopolitical tensions. In response to this assessment, the CNB introduced a general SyRB for the first time in 2024 with effect from 1 January 2025. If the relevance of the risks covered by this rate changes or if these risks materialise, the CNB is ready to change the rate or fully release this buffer.
Systemic risk buffer rate
- current rate: not set
- rate to be applied from 1 January 2025: 0.5%
Provision of a general nature on setting the systemic risk buffer rate
- to be published on 1 August 2024
Systemic risk buffer rates in EU countries (external link)
Note: From 1 November 2014 to 31 September 2021, the CNB applied a general SyRB to mitigate the risks associated with the systemic importance of banks. However, since the transposition of CRD V into Czech law in effect as of 1 October 2021, the CNB has been mitigating these risks using the capital buffer for other systemically important institutions.