European Systemic Risk Board - ESRB

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The European Systemic Risk Board ESRB: European Systemic Risk Board) It is the competent supervisory body of the financial system of the European Union in the macroprudential field. It is responsible for preventing, detecting and mitigating systemic risk, contributing to the financial stability of the EU.

The ESRB is responsible for issuing recommendations and warnings in case of detecting risks but does not have binding legal powers. It is a preventive rather than an advisory body. The effectiveness of its action will depend on the ability to collect reliable information and the degree of implementation of the proposed measures.

To properly understand the functioning of the ESRB, we must bear in mind the organizational framework of which the ESRG is a part, the European System of Financial Supervision, designed in 2010, and consisting of four independent supervisory bodies:

  • European Banking Authority (EBA: European Banking Authority).
  • European Securities and Markets Authority (ESMA: European Securities and Markets Authority).
  • European Systemic Risk Board (ESRB: European Systemic Risk Board).
  • European Insurance and Pensions Authority (EIOPA: European Insurance and Occupational Pensions Authority).

After the outbreak of the financial crisis, it was decided to set up a body whose task was to ensure the joint financial stability of the system. On the one hand, it was necessary to restructure the supervision model of financial institutions and their actions (through EBA, ESMA and EIOPA). On the other, it was necessary to create a body in charge of avoiding the repetition of new episodes of instability in the financial system. To this end, the European Systemic Risk Board is created through Regulation 1092/2010.

Functions of the European Systemic Risk Board

The function that justifies the birth of the ESRB is to calculate and prevent systemic risk and promote its mitigation. Systemic risk is understood to be the set of disturbances originating in the financial system as a consequence of the interdependencies between its intervening agents and which can cause catastrophic repercussions for the market. This type of risk usually materializes as a consequence of a series of chain failures. For example, a financial institution defaults on its obligations and, as a consequence, the creditor does not meet its obligations either, and so on until the system collapses.

From this main function, some sub-functions are derived:

  • Detect threats to the stability of the financial system as a whole.
  • Classify the risks detected.
  • Prepare recommendations and warnings.
  • Encourage the implementation of its recommendations by the competent national authorities.

Structure of the European Systemic Risk Board

The European Systemic Risk Board has the following organizational structure:

  • General Meeting: It is the governing body and is chaired by the president of the European Central Bank (ECB).
  • Steering Committee: Assists the General Meeting and supervises the technical-advisory bodies.
  • Secretariat: Provides administrative and statistical support to the Steering Committee.
  • Technical Advisory Committee: Assists the Board in preparing reports and recommendations.
  • Advisory Scientific Committee: It is in charge of developing research in the macroeconomic field.

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