The European Commission has launched a consultation on the EU's macro-prudential framework, with the aim of aligning regulations and improving levels of systemic financial risk.

The aim of the consultation is to gather feedback and evidence on how the EU macro-prudential framework works, to improve stability in the EU's financial system and enable EU countries to address specific financial stability risks. It also aims to achieve the right balance between the ability of EU countries to address financial risks and oversight from the Commission.

Its goals are to:

• improve existing macro-prudential instruments (such as capital buffers);
• improve the alignment of rules;
• examine the role and organisational structure of the ESRB and its relationship with the European Central Bank.

Eliminating overlaps and inconsistencies

The macro-prudential approach considers financial risk arising from within the financial system and the interconnectedness of financial institutions. The framework is currently made up of five separate pieces of legislation: two European Systemic Risk Board (ESRB) Regulations, the Capital Requirements Directive IV (CRD IV), the Capital Requirements Regulation (CRR) and the Single Supervisory Mechanism (SSM) Regulation.

According to the Commission, the current macro-prudential framework has evolved incrementally over recent years, which has created a number of weaknesses in the framework. It stated: “We want to avoid any overlaps and inconsistencies that may have arisen between the various constituent parts. That is why with this consultation we are seeking the opinions of interested and affected groups, such as members of the industry, banks, trade bodies, interested academics, as well as consumer organisations. By addressing all five component parts in a comprehensive review, we aim to eliminate any possible inconsistencies.”

The consultation is open until 26 October 2016.