General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
April 03, 2018

IMF published staff report and selected issues report in the context of the 2018 Article IV consultation with Luxembourg. The assessment reveals that the banking system has strong capital and liquidity buffers. The four large domestically oriented banks have better profit performance than European banks on average. They have passed on lower rates to domestic borrowers while lending spreads have remained broadly constant and nonperforming loans (NPLs) low.

Directors encouraged the authorities to continue enhancing regulation and supervision, in line with the 2017 Financial Sector Assessment Program (FSAP) recommendations. They stressed the importance of continuing to strengthen the oversight of investment funds, closely engage with relevant foreign regulators, and develop system-wide methodologies for liquidity stress testing. Directors advised increasing on site bank inspections and stressed the importance of rigorous supervision of cross-border exposures of foreign-oriented banks and of the authorities’ ongoing commitment to reinforce the oversight of nonbank holding companies. Directors encouraged further strengthening of macro-prudential oversight, including by publishing the substance of the macro=financial risk analysis of the systemic risk committee. They recommended further addressing risks related to anti-money laundering and combating the financing of terrorism.

The staff report emphasizes that appropriate resolution plans for the most important banks established in Luxembourg should be finalized. With the upcoming EU harmonized reporting on the maturity ladder, the supervision of large intragroup exposures will be strengthened as recommended in the 2017 FSAP. In the context of the review of the CRR/CRD-IV/BRRD/SRMR, the authorities remain attached to the objective of further risk reduction in the banking sector. The national authorities considered it crucial that institutions, including local subsidiaries, maintain sufficient levels of own funds and eligible liabilities to allow for a smooth implementation of resolution strategies. With respect to Brexit, the report highlights certain uncertainties as UK is an important trading partner, especially for financial services. Brexit could disrupt Luxembourg’s delegation model for portfolio management of investment funds. However, Luxembourg could benefit from relocation of financial institutions. Several insurance companies and a few banks have already announced relocation of activities to Luxembourg. The Brexit process may also have implications for the location of financial activity required within the EU to enjoy passporting rights. Furthermore, the report highlights that regulation and supervision need to be upgraded to deal with fintech risks as developments in this area may pose new challenges to financial stability. Regulatory and supervisory arrangements will need to keep pace with fintech developments.

The selected issues report examines the impact of monetary policy on Luxembourg. Banks have remained profitable and interest margins stable, while fee and commission income from fund and other activity has been healthy. The investment fund industry has benefited from various factors such as portfolio re-balancing, search for yield, and other market developments leading to strong inflows into various classes of investment funds. Scenario analysis suggests that the fund industry could be adversely impacted by sharp interest rate increases and that, because of interconnections, the banking system would also be affected. Margins of some banks could also decline when interest rates normalize. Against this backdrop, it is important to implement all 2017 FSAP recommendations that will contribute to making the financial system more resilient to shocks, including those arising from faster-than-expected monetary policy normalization.


Related Links

Keywords: Europe, EU, Luxembourg, Banking, Insurance, Securities, Article IV, FSAP, Brexit, Asset Management, IMF

Related Insights

EBA Finalizes Guidelines on the STS Criteria in Securitization

EBA published the final guidelines that provide a harmonized interpretation of the criteria for a securitization to be eligible as simple, transparent, and standardized (STS) on a cross-sectoral basis throughout EU.

December 12, 2018 WebPage Regulatory News

OSFI Sets Domestic Stability Buffer for D-SIBs at 1.75%

OSFI set the level for the Domestic Stability Buffer at 1.75% of total risk-weighted assets, as calculated under the Capital Adequacy Requirements (CAR) Guideline.

December 12, 2018 WebPage Regulatory News

FSI Publishes Paper on Proportionality in Insurance Solvency Rules

FSI published a paper on proportionality in the application of insurance solvency requirements.

December 11, 2018 WebPage Regulatory News

BCBS Updates Framework for Pillar 3 Disclosure Requirements

BCBS published the updated framework for Pillar 3 disclosure requirements.

December 11, 2018 WebPage Regulatory News

EBA Issues Revised List of Validation Rules for Reporting

EBA revised the list of validation rules in its implementing technical standards on supervisory reporting.

December 11, 2018 WebPage Regulatory News

IMF Reports Assess the Stability of Financial System in Brazil

IMF published a report on the results of the Financial System Stability Assessment (FSSA) on Brazil.

December 11, 2018 WebPage Regulatory News

FED Governor Examines Pros of Imposing Capital Buffers on Large Banks

At the Peterson Institute for International Economics in Washington D.C., the FED Governor Lael Brainard summarized the financial stability outlook, highlighted areas where financial imbalances seem to be building, and touched on the related policy implications.

December 07, 2018 WebPage Regulatory News

US Agencies Propose Rule on Appraisals for Real Estate Transactions

US Agencies (FDIC, FED, and OCC) proposed a rule to increase the threshold level at or below which appraisals would not be required for the residential real estate transactions from USD 250,000 to USD 400,000. Comments will be accepted for 60 days from publication in the Federal Register.

December 07, 2018 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for December 2018

This week one answer was published as part of the Single Rulebook Questions and Answers (Q&A).

December 07, 2018 WebPage Regulatory News

FED Updates Reporting Form and Instructions for FR Y-14Q

FED published the updated reporting form FR Y-14Q for Capital Assessment and Stress Testing, along with the associated instructions.

December 06, 2018 WebPage Regulatory News
RESULTS 1 - 10 OF 2325