Background for the establishment of the Council

The Systemic Risk Council was established in 2013 on the basis of, among others, a recommendation from the European Systemic Risk Board and a report from the Committee on the Structure of Financial Supervision in Denmark.

Background for establishment of the Council

Due to the financial crisis and in order to support financial stability, there has, internationally and at EU level, been increased focus on the work on managing systemic risk, including limiting and containing systemic financial risks and their ramifications.

As of 1 January 2011, at the EU level, the European Systemic Risk Board, ESRB, was established, which is to contribute to identifying and managing the building up of systemic risks in the EU.

In December 2011, the ESRB recommended, that all member states appoint authorities to be responsible for managing systemic risks, e.g. in the form of a national systemic risk council.

The basis for the ESRB's recommendation is that, according to the ESRB, effective management of systemic risks in the EU depends on appropriate institutional frameworks for this management in each member state, as the specific tools are applied at national level and not at EU level. Furthermore, management of financial stability and the framework for this is being discussed in the member states, and, accordingly, there is a need for guidelines to help ensure consistency between countries.

In Denmark, the Minister for Business and Growth requested the Committee on the Structure of Financial Supervision in Denmark to assess possible options in Denmark. Further to this, the Committee issued a report on the establishment of a Systemic Risk Council in Denmark (in Danish). The Establishment of the Systemic Risk Council was subsequently approved by law in December 2012.

European assessment of national authorities' macroprudential mandate

In 2014, the ESRB finished evaluating the member states' compliance with its recommendation, which among others played a part in the establishment of the Systemic Risk Council. The institutional framework to handle systemic risks varies considerably across countries. The Danish implementation was assessed to be largely compliant with the recommendation. The same assessment was accorded to 16 other countries. Seven countries were assessed to have fully complied with the recommendation.

The European Systemic Risk Board

As of 1 January 2011, at the EU level, the European Systemic Risk Board, ESRB, was established. The ESRB is to contribute to identifying and adressing the build up of systemic risks in the EU. The ESRB has an advisory function to the EU-countries.

The ESRB consists of the national central bank govenors and representatives from the European Central Bank, the European Commission, the European supervisory authorities, and the chairman and two vice chairmen from the Advisory Scientific Committee (which comprises external experts) with voting rights. Representatives from the national supervisory authorities and the chairman of the Economic and Financial Committee attend without voting rights. The President of the European Central Bank is the chairmon of the ESRB until 2016.

The ESRB is to prevent and reduce systemic risks in the EU. The ESRB is tasked with identifying risks and – if necessary – make recommendations and warnings that may reduce these risks. Recommendations and warnings can be directed towards the entire EU, individual or groups of countries' governments or supervisory authorities, the Commission or the European supervisory authorities. When the ESRB makes a recommendation, the recipient can choose to follow it or not. As such, it is not a binding recommendation for the member countries. However, if a recipient chooses not to follow a recommendation from the ESRB, said recipient must explain why. The recipient of the recommendation shall inform the ESRB and ECOFIN about the status. There is not a similar obligation to comply-or-explain to warning from the ESRB.