Macroprudential Supervision in the EU

The scope of this Master Thesis is to highlight how the 2008 Global Financial Crisis totally underscored the interconnectedness and the systemic vulnerabilities of the financial systems. This was the fundamental reason why there has been noticed a paradigm shift in the new regulatory approaches adopted. Macroprudential supervision has proven to be a pivotal milestone in order to address the procyclicality of economic variables, to tackle the systemic risks that emerged and finally reinforce financial stability, albeit enhancing also monetary policies. The establishment of the European Systemic Risk Board and its insightful recommendations seems to be a robust response to previous regulatory gaps, which could not even adequately identify these kinds of risks. The proactive role of the institution in identifying and mitigating different kinds of risks has justified the importance of its existence. Further, the evolution of capital requirements and capital buffers were absolutely necessary for strengthening the resilience of financial institutions against the procyclical nature of the economy and the demands that may occur. It may entail some difficulties for the majority of the people to truly comprehend and perceive such terms of technical substance, as it was for me personally in the beginning, but their utmost importance to financial stability is found beyond worthy. Except for measures such as the Countercyclical Capital Buffers and the Capital Adequacy Ratios, the Basel III Framework introduced also some leverage and liquidity requirements that were all adopted by the two prominent European secondary acts of law, the Capital Requirements Regulation and the Capital Requirements Directive IV. The interaction among the aforementioned – and the ones that will be analyzed further in the Chapters of this paper- was the key component to result in a more complex regulatory regime. In addition, it will be studied the usage of macroprudential tools outside the abovementioned legislative triptych like the Loan-to-Value ratios, whose contribution to avoid scenario like the Housing Bubble crisis of the United States of America can be crucial. Lastly, this paper will examine how macroprudential supervision may be implemented in practice in a Member State of the European Union, and more specifically, in Greece through certain Executive Acts issued by the Bank of Greece –the National Competent Authority-.