RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD

of 30 April 2021

amending Recommendation ESRB/2015/2 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures

(ESRB/2021/3)

(2021/C 222/01)

THE GENERAL BOARD OF THE EUROPEAN SYSTEMIC RISK BOARD,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (1), and in particular Article 3 and Articles 16 to 18 thereof,

Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (2), and in particular Article 458(8) thereof,

Having regard to Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (3), and in particular Article 134(5) thereof,

Having regard to Decision ESRB/2011/1 of the European Systemic Risk Board of 20 January 2011 adopting the Rules of Procedure of the European systemic Risk Board (4), and in particular Articles 18 to 20 thereof,

Having regard to the Agreement on the European Economic Area (5), and in particular Annex IX thereof,

Whereas:

(1) In order to ensure effective and consistent national macroprudential policy measures, it is important to complement the mandatory reciprocity required under Union law with voluntary reciprocity.

(2) The framework on voluntary reciprocity for macroprudential policy measures set out in Recommendation ESRB/2015/2 of the European Systemic Risk Board (6) aims to ensure that all exposure-based macroprudential policy measures activated in one Member State (7) are reciprocated in the other Member States.

(3) Decision of the EEA Joint Committee No 79/2019 of 29 March 2019 amending Annex IX (Financial services) to the EEA Agreement [2019/2133] (8) incorporated Directive 2013/36/EU and Regulation (EU) No 575/2013 into the Agreement on the European Economic Area (EEA Agreement) with effect from 1 January 2020. Directive (EU) 2019/878 of the European Parliament and of the Council (9) and Regulation (EU) 2020/873 of the European Parliament and of the Council (10) which introduce significant amendments to Directive 2013/36/EU and Regulation (EU) No 575/2013 have not yet been incorporated into the EEA Agreement.

(4) Finansdepartementet (the Norwegian Ministry of Finance) acts as designated authority for the purpose of both Article 133(1) of Directive 2013/36/EU and Article 458(1) of Regulation (EU) No 575/2013, as that Directive and that Regulation, respectively, applied to and in Norway on 1 January 2020 pursuant to the terms of the EEA Agreement (hereinafter the ‘CRD as applicable to and in Norway on 1 January 2020’ and the ‘CRR as applicable to and in Norway on 1 January 2020’, respectively). On 5 November 2020 Finansdepartementet notified the ESRB, under Article 133(11) of the CRD as applicable to and in Norway on 1 January 2020, of its intention to set a systemic risk buffer rate applicable to credit institutions and average risk weight floors applicable to residential and commercial real estate exposures of credit institutions which use the internal ratings-based (IRB) approach.

(5) On 4 December 2020, the ESRB adopted Recommendation ESRB/2020/14 of the European Systemic Risk Board (11) in which it recommended that the proposed systemic risk buffer rate to be applied in Norway should be considered justified, suitable, proportionate, effective and efficient in relation to the risk targeted by Finansdepartementet. Pursuant to Article 458(10) of the CRR as applicable to and in Norway on 1 January 2020, notwithstanding the procedure set out in Article 458(4) of that Regulation, Member States may increase risk weights beyond those provided for in that Regulation.

(6) Since 31 December 2020, credit institutions authorised in Norway are subject to (i) a systemic risk buffer requirement for exposures in Norway applied at a rate of 4,5 %, pursuant to Article 133 of the CRD as applicable to and in Norway on 1 January 2020; (ii) a 20 % average risk weight floor for residential real estate exposures in Norway, pursuant to Article 458(2)(d)(vi) of the CRR as applicable to and in Norway on 1 January 2020; and (iii) a 35 % average risk weight floor for commercial real estate exposures in Norway, pursuant to Article 458(2)(d)(vi) of the CRR as applicable to and in Norway on 1 January 2020. However, for credit institutions that do not use the advanced IRB approach, the systemic risk buffer rate applicable to all exposures is set at 3 % until 31 December 2022; thereafter, the systemic risk buffer rate applicable to domestic exposures is set at 4,5 %.

(7) On 2 February 2021 the Finansdepartementet submitted to the ESRB a request for reciprocation of the systemic risk buffer rate, under Article 134(4) of the CRD as applicable to and in Norway on 1 January 2020, and for the average risk weight floors, under Article 458(8) of the CRR as applicable to and in Norway on 1 January 2020.

(8) Following the request by the Finansdepartementet to the ESRB and in order to: (i) prevent the materialisation of negative cross-border effects in the form of leakages and regulatory arbitrage that could result from the implementation of the macroprudential policy measures applied in Norway; and (ii) preserve a level playing field among EU mortgage lenders, the General Board of the ESRB decided to include these measures in the list of macroprudential policy measures which are recommended to be reciprocated under Recommendation ESRB/2015/2.

(9) Given that credit institutions authorised in Norway are not yet subject to Directive (EU) 2019/878, relevant authorities in Member States, that have already implemented that Directive, should be able to reciprocate the Norwegian systemic risk buffer rate in a way and at a level that takes account of any overlap or difference in the capital requirements applicable in their Member State and Norway, until Directive (EU) 2019/878 has also been incorporated into the EEA Agreement.

(10) In light of the continuing effects of the COVID-19 pandemic on the banking sector and the size of the systemic risk buffer rate, it is appropriate to allow for sufficient time for the reciprocation of the notified measures.

(11) Therefore, Recommendation ESRB/2015/2 should be amended accordingly,

HAS ADOPTED THIS RECOMMENDATION

AMENDMENTS

Recommendation ESRB/2015/2 is amended as follows:

1. in Section 1, sub-recommendation C(1) is replaced by the following: ‘1. The relevant authorities are recommended to reciprocate the macroprudential policy measures adopted by other relevant authorities and recommended for reciprocation by the ESRB. It is recommended that the following measures, as further described in the Annex, be reciprocated: Belgium: — a risk-weight add-on for retail exposures secured by residential immovable property located in Belgium, applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013 to credit institutions authorised in Belgium, using the IRB Approach for calculating regulatory capital requirements and composed of: (a) a flat risk-weight add-on of 5 percentage points; and (b) a proportionate risk-weight add-on consisting of 33 per cent 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 Article 395(1) of Regulation (EU) No 575/2013, applicable to exposures to highly-indebted large non-financial corporations having their registered office in France to 5 per cent of eligible capital, applied in accordance with Article 458(2)(d)(ii) of Regulation (EU) No 575/2013 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 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: (a) LTV limit of 100 % for first-time buyers acquiring their primary residence; (b) LTV limit of 90 % for other buyers i.e. non first-time buyers acquiring their primary residence. This limit 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 %; (c) LTV limit of 80 % for other mortgage loans (including the buy-to-let segment). Norway: — a 4,5 % systemic risk buffer rate for exposures in Norway, applied in accordance with Article 133 of Directive 2013/36/EU, as applied to and in Norway on 1 January 2020 pursuant to the terms of the Agreement on the European Economic Area (*1) (EEA Agreement) (hereinafter the ‘CRD as applicable to and in Norway on 1 January 2020’), to all credit institutions authorised in Norway; — a 20 % average risk weight floor for residential real estate exposures in Norway, applied in accordance with Article 458(2)(d)(vi) of Regulation (EU) No 575/2013, as applied to and in Norway on 1 January 2020 pursuant to the terms of the EEA Agreement (hereinafter the ‘CRR as applicable to and in Norway on 1 January 2020’), to credit institutions, authorised in Norway, using the internal ratings-based (IRB) approach for calculating regulatory capital requirements; — a 35 % average risk weight floor for commercial real estate exposures in Norway, applied in accordance with Article 458(2)(d)(vi) of the CRR as applicable to and in Norway on 1 January 2020 to credit institutions authorised in Norway, using the IRB approach for calculating regulatory capital requirements. Sweden: — a credit institution-specific floor of 25 per cent 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 Article 458(2)(d)(vi) of Regulation (EU) No 575/2013 to credit institutions authorised in Sweden using the IRB Approach for calculating regulatory capital requirements. (*1) OJ L 1, 3.1.1994, p. 3.’;"

2. The Annex is replaced by the Annex to this Recommendation.

Done at Frankfurt am Main, 30 April 2021. The Head of the ESRB Secretariat, on behalf of the General Board of the ESRB Francesco MAZZAFERRO

(1) OJ L 331, 15.12.2010, p. 1.

(2) OJ L 176, 27.6.2013, p. 1.

(3) OJ L 176, 27.6.2013, p. 338.

(4) OJ C 58, 24.2.2011, p. 4.

(5) OJ L 1, 3.1.1994, p. 3.

(6) Recommendation ESRB/2015/2 of the European Systemic Risk Board of 15 December 2015 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures (OJ C 97, 12.3.2016, p. 9).

(7) Point (a) of paragraph 14 and point (a) of paragraph 14a. of Annex IX to the Agreement on the European Economic Area provides that the terms ‘Member State(s)’ and ‘competent authorities’ shall be understood to include, in addition to their meaning in Directive 2013/36/EU and Regulation (EU) No 575/2013, the EFTA States and their competent authorities, respectively.

(8) OJ L 321, 12.12.2019, p. 170.

(9) Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures (OJ L 150, 7.6.2019, p. 253).

(10) Regulation (EU) 2020/873 of the European Parliament and of the Council of 24 June 2020 amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic (OJ L 204, 26.6.2020, p. 4).

(11) Recommendation ESRB/2020/14 of the European Systemic Risk Board of 4 December 2020 regarding Norwegian notification of its intention to set a systemic risk buffer rate in accordance with Article 133 of Directive (EU) 2013/36/EU, available on the ESRB’s website.