The systemic risk buffer

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

The purpose of the SRB 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 SRB 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 broad-based and the sectoral SRB depending on the specific sources of systemic risk. The sectoral SRB 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. It considers the risk associated with property exposure concentration to be the most significant structural risk at present. If it finds that these risks pose a risk to the financial stability of the banking sector, it is ready to introduce the SRB. The CNB is meanwhile ready to lower the SRB or release it fully if systemic risks targeted by the SRB materialise or diminish. Sustained adverse economic developments could instigate the materialisation of such risks. However, the risks may also diminish gradually during a period of stable macroeconomic developments.

The CNB has not identified any structural systemic risks necessitating the creation of an SRB and is therefore not applying any broad-based or sectoral SRB at present.  

Purpose of the buffer Type of exposure Buffer rate Effect
Mitigating risks connected with systemic importance All exposures 1 – 3% from 1 November 2014 to 1 October 2021

Note: From 1 November 2014 to 1 October 2021, the CNB applied a broad-based SRB (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.