Featured Product

    IMF Issues Reports on 2018 Article IV Consultation with Lithuania

    June 25, 2018

    IMF published its staff report and selected issues report under the 2018 Article IV consultation with Republic of Lithuania. Directors acknowledged that the financial system is sound and that recent credit and housing market developments do not pose risks to financial stability. However, they encouraged the authorities to continue using macro-prudential policy proactively to address systemic risks and cooperating closely with home-country authorities of banks.

    The staff report notes that the authorities are committed to preserving macroeconomic and financial stability. Maintaining financial stability will require close monitoring of housing and parent bank developments and proactive use of macro-prudential policy. The Bank of Lithuania (BoL) should make full use of its broad powers to tighten macro-prudential and supervisory policy to prevent a systemic-risk build-up. BoL has a broad set of countercyclical, sectoral, and liquidity macro-prudential instruments to tackle shocks and should continue using them proactively, as needed. In implementing the macro-prudential policy, the BoL should cooperate closely with the parent banks’ regulators to assess potential spillovers from vulnerabilities in parent banks. Cooperation in the Nordic-Baltic Stability Group (NBSG) should be further enhanced following the conclusion of an MoU on cooperation and coordination on cross-border financial stability earlier this year. Given the fluidity of global markets, the crisis simulation exercise—which includes ECB supervisors covering three quarters of the Lithuanian banking sector—should help ensure crisis preparedness and coordination. Finally, credit union reform, which is gradually strengthening the system, should continue as planned.

    The selected issues report reviews Lithuania’s macro-prudential policy framework against international best practices. It finds that Lithuania possesses the powers and tools to manage systemic risks, although the benign post-crisis period offers limited scope for assessing the effectiveness of macro-prudential policy. Lithuania’s institutional framework for macro-prudential policy is strong. It gives BoL the sole responsibility and broad powers to conduct macro-prudential policy, including identification and analysis of systemic risks. The macro-prudential framework also gives BoL a clear objective: to contribute to the stability of the financial system, including strengthening the resilience of the financial system, and mitigating the build-up of systemic risk. Lithuania’s macro-prudential toolkit appears adequate. Lithuania’s systemic risks stem primarily from external shocks through trade channels and volatile financial conditions in the Nordics.

    BoL uses the macro-prudential instruments including loan-to-value (LTV), debt service-to-income (DSTI), loan maturity, stress test/sensitivity test, countercyclical capital buffers (CCyB), other systemically important institutions buffer, and capital conservation buffer. Moreover, the macro-prudential policy in Lithuania has not been recalibrated frequently in recent years, given the benign environment that has prevailed after the crisis. Hence it is difficult to fully assess its effectiveness. The infrequent recalibration of macro-prudential policy reflects weak credit growth in the post-crisis years. Regarding the recent increase in the CCyB, BoL appropriately addressed the emergence of risks related to credit growth through broad-based tools (which affect all credit exposures) such as the CCyB. Still, the increase is unlikely to have a significant impact on bank behavior because most banks hold significant capital buffers. BoL also proceeded cautiously by phasing the cost of adherence to the new regulation. 

     

    Related Links

    Keywords: Europe, Republic of Lithuania, Banking, Article IV, Macro-prudential Policy, CCyB, Financial Stability, Systemic Risk, IMF

    Related Articles
    News

    PRA Revises Branch Return and Updates Guidance for Regulatory Reports

    PRA published the policy statement PS17/19, which contains the final policy related to changes in the format and content of the Branch Return Form and reporting guidance.

    September 12, 2019 WebPage Regulatory News
    News

    FINMA Outlines Treatment of Stablecoins in Supplement to Guide on ICO

    FINMA published a supplement to its initial coin offerings (ICOs) guidelines, outlining the treatment for stablecoins under the Swiss supervisory law.

    September 11, 2019 WebPage Regulatory News
    News

    Ursula von der Leyen Presents Structure of Next European Commission

    President-elect Ursula von der Leyen has presented her team and the new structure of the next European Commission.

    September 10, 2019 WebPage Regulatory News
    News

    FED Proposes to Revise and Extend Reporting Form on Systemic Risk

    FED proposed to extend for three years, with revision, the Banking Organization Systemic Risk Report (FR Y-15; OMB No. 7100-0352).

    September 10, 2019 WebPage Regulatory News
    News

    EBA Issues Revised List of Validation Rules for Reporting

    EBA published the revised list of validation rules (version 2.9) in its implementing technical standards on supervisory reporting.

    September 10, 2019 WebPage Regulatory News
    News

    Bundesbank Publishes Supplementary Validation Rules for Reporting

    Bundesbank published the updated document containing supplementary validation rules in the context of the implementation of the reporting system at national level.

    September 10, 2019 WebPage Regulatory News
    News

    APRA Licenses Xinja Bank as Authorized Deposit-Taking Institution

    APRA granted Xinja Bank Limited a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

    September 09, 2019 WebPage Regulatory News
    News

    FDIC Proposes Revisions to Regulations on Interest Rate Restrictions

    FDIC proposed revisions to its regulations covering interest rate restrictions that apply to less than well-capitalized insured depository institutions.

    September 09, 2019 WebPage Regulatory News
    News

    EBA Intends to Clarify End-Treatment of Grandfathered Instruments

    EBA announced its intention to clarify the prudential treatment applicable to own funds instruments at the end of the grandfathering period, which expires on December 31, 2021.

    September 09, 2019 WebPage Regulatory News
    News

    IMF Releases Reports on 2019 Article IV Consultation with Saudi Arabia

    IMF published its staff report and selected issues report in context of the 2019 Article IV consultation with Saudi Arabia.

    September 09, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3799