5. Criteria for assessing the systemic relevance of the risks stemming from the subsets of sectoral exposures

When identifying a subset of sectoral exposures to which relevant authorities may apply an SyRB, relevant authorities should consider whether it is justified to activate a sectoral SyRB on the basis of the systemic relevance of the risks stemming from the subset of sectoral exposures they want to target, taking into account the different sources from which these risks can arise from a national financial stability perspective, and avoid an excessively granular application of the sectoral SyRB.

For the purpose of paragraph 15, relevant authorities should make a quantitative and qualitative assessment of the systemic relevance of the risks stemming from the subset of sectoral exposures, including, where appropriate, the setting of materiality thresholds.

When carrying out the assessment mentioned in paragraph 16, relevant authorities should take into account the following criteria:

• a. size;
• b. riskiness; and
• c. interconnectedness.

5.1. Size

Relevant authorities should consider whether the size of the targeted subset of sectoral exposures can give rise to a serious risk to the financial system and the real economy in a specific Member State. For these purposes, relevant authorities may take into consideration the relative size of the subset to the total assets of the domestic banking system, to the total risk-weighted assets of the domestic banking system, to the total capital of the domestic banking system, and to the GDP of the domestic economy. Relevant authorities may also take into account, where relevant, other considerations such as the market structure for certain exposures.

5.2. Riskiness

Relevant authorities should consider whether the credit, market and liquidity risk of the targeted subset of exposures is correlated with the magnitude of losses stemming from this subset. Possible measurements of riskiness may take into consideration historical loss/impairment rates, PD/LGD developments, value adjustments and market developments. Forward-looking indicators including losses under adverse macroeconomic developments may also be considered, given the pre-emptive nature of macroprudential buffers.

5.3. Interconnectedness

Relevant authorities should consider whether other subsets of exposures or financial market actors depend directly and/or indirectly on the targeted subset of sectoral exposures and whether the materialisation of risk in the targeted subset could lead to negative direct and/or indirect material spillover effects to other exposures or to financial market actors.