The European Systemic Risk Board (ESRB) published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden. The General Board of ESRB issued recommendation to include a stricter national measure in France—with respect to the large exposure requirements set out in the Capital Requirements Regulation (CRR)—in the list of macro-prudential policy measures that are recommended for reciprocation under the Recommendation ESRB/2015/2. ESRB also amended text on the reciprocation of certain macro-prudential measures from Belgium, Luxembourg, Norway, and Sweden. In this context, the Recommendation ESRB/2021/6, which amends Recommendation ESRB/2015/2, has been published in the Official Journal of the European Union.
Following a request by the High Council for Financial Stability (HCSF), acting as the French designated authority for the purpose of Article 458 of CRR, the General Board of ESRB recommended inclusion of a stricter national measure in the list of macro-prudential policy measures that are recommended to be reciprocated under the Recommendation ESRB/2015/2. The existing stricter national measure imposes tighter large exposure limits (5% of the eligible capital), with regard to the highly indebted large non-financial corporations that have their registered office in France, on French globally systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) at the highest level of consolidation of the banking prudential perimeter of the institution concerned. Since CRR2 introduced amendments to the requirements for large exposures, from June 28, 2021, institutions must calculate large exposures against tier 1 capital—excluding tier 2 capital. The existing stricter national measure has been modified accordingly. Therefore, Recommendation ESRB/2015/2 has been amended to reflect the changes to the existing stricter national measure. The Recommendation ESRB/2021/6 also replaces Section 1, sub-recommendation C(1), of the Recommendation ESRB/2015/2 with respect to the following:
- Belgium—A risk-weight add-on for retail exposures secured by residential immovable property located in Belgium, applied in accordance with CRR to credit institutions authorized in Belgium, using the internal ratings-based (IRB) approach for calculating regulatory capital requirements and composed of a flat risk-weight add-on of 5 percentage points, along with a proportionate risk-weight add-on consisting of 33% of the exposure-weighted average of the risk-weights applied to the portfolio of retail exposures secured by residential immovable property located in Belgium.
- France—A tightening of the large exposure limit provided for in CRR, applicable to exposures to highly-indebted large non-financial corporations having their registered office in France to 5% of Tier 1 capital, applied to G-SIIs and O-SIIs at the highest level of consolidation of their banking prudential perimeter.
- Luxembourg—Legally binding loan-to-value (LTV) limits for new mortgage loans on residential real estate located in Luxembourg, with different LTV limits applicable to different categories of borrowers: LTV limit of 100% for the first-time buyers acquiring their primary residence, LTV limit of 90% for other buyers (that is, non first-time buyers) acquiring their primary residence, and LTV limit of 80% for other mortgage loans (including the buy-to-let segment). The LTV limit of 90% is implemented proportionally via a portfolio allowance. Specifically, lenders may issue 15% of the portfolio of new mortgages granted to these borrowers with an LTV above 90% but below the maximum LTV of 100%.
- Norway—A 4.5% systemic risk buffer rate for exposures in Norway, applied in accordance with the Capital Requirements Directive (CRD IV), as applied to, and in, Norway on January 01, 2020. Next, a 20 % average risk-weight floor for residential real estate exposures in Norway, pursuant to CRR, as applied to and in Norway on January 01, 2020 to credit institutions, authorized in Norway, using the IRB approach for calculating regulatory capital requirements. Finally, a 35% average risk weight floor for commercial real estate exposures in Norway, pursuant to CRR, as applicable to and in Norway on January 01, 2020 to credit institutions authorized in Norway, using the IRB approach for calculating regulatory capital requirements.
- Sweden—A credit institution-specific floor of 25% for the exposure-weighted average of the risk-weights applied to the portfolio of retail exposures to obligors residing in Sweden secured by immovable property in accordance with CRR to credit institutions authorized in Sweden using the IRB approach for calculating regulatory capital requirements.
Keywords: Europe, Belgium, France, Luxembourg, Norway, Sweden, Banking, Systemic Risk, ESRB 2015/2, Reciprocity, Macro-Prudential Policy, Regulatory Capital, Basel, Large Exposures, CRR, CRR2, G-SII, O-SII, ESRB
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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