ESRB published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden. The General Board of the ESRB decided to include macro-prudential measure for loan-to-value (LTV) limits on new mortgage loans on the residential real estate in Luxembourg, along with the Norwegian macro-prudential measures for systemic risk buffer rate and average risk-weight floors, in the list of macro-prudential policy measures that are recommended for reciprocation under Recommendation ESRB/2015/2. ESRB also amended text on the reciprocation of certain macro-prudential measures from Belgium, France, and Sweden. In this context, the Recommendations ESRB/2021/2 and ESRB/2021/3, which amend Recommendation ESRB/2015/2, have been published in the Official Journal of the European Union.
Following requests for reciprocation by the Systemic Risk Committee of Luxembourg and Norwegian Ministry of Finance to ESRB on December 18, 2020 and February 02, 2021 respectively, the General Board of ESRB decided to include the measures in the list of macro-prudential policy measures that are recommended to be reciprocated under Recommendation ESRB/2015/2. Therefore, Recommendation ESRB/2015/2 has been amended accordingly. The Recommendations ESRB/2021/2 and ESRB/2021/3 replace 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 the Capital Requirements Regulation or 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 and 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 eligible capital, applied to global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) at the highest level of consolidation of their banking prudential perimeter
- Luxembourg—Legally binding 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 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 in a proportional way 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 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 the 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.
- 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, Recommendation, Macro-Prudential Policy, Regulatory Capital, Basel, Residential Real Estate, Credit Risk, ESRB
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