EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 19 February 2018  
on additional macro -prudential tools for residential mortg ages  
(CON/ 2018/ 9) 
 
Introduction and legal basis  
On 13 December 2017,  the European Central Bank (ECB) received a request from  the Luxembourg 
Minist ry of Finance for an opinion on a draft law on macro- prudential measures on residential mortgage 
loans in Luxembourg and amending the Law on  banking and the Law establishing the Luxembourg 
Systemic Risk Committee ( herein after the ‘ draft law’). 
The ECB’s competence to deliver an opinion is based on Articles  127(4)  and 282(5)  of the Treaty  on the 
Functioning of the European Union  and the third, f ourth and s ixth indent s of Article  2(1) of Council 
Decision 98/415/EC1, as the draft law relate s to the Banque centrale du Luxembourg ( BCL), statistics and 
rules applicable to financial institutions insofar as they materially influence the stability of financial 
institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of 
the European Central Bank, the Gover ning Council has adopted this opinion.  
 
1. Purpose of the  draft law 
1.1 The purpose of the draft law is to adapt the macro- prudential legal framework  to address the threat 
posed in Luxembourg to financial stability by the combination of high residential real estate sector 
prices and increasing household indebtedness. As noted in the remarks accompanying the draft 
law, in the light of  the alert issued by the European System Risk Board in November 2016 
identifying emerging vulnerabilities in the residential property sector in Luxembourg, and, more 
particularly, with regard to household debt and property prices2, as well as the International 
Monetary Fund’s recommendations with regard to the introduction of new macro- prudential tools 
for the property sector in Luxembourg3, it has become important for Luxembourg to equip itself with 
a legislative framework that can be used to effectively deal with macro- prudential risks stemming 
from the residential property sector.  
                                                 
1  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
2  See European Systemic Risk Board, Vulnerabilities in the EU residential real estate sector, November 2016, pp. 5  
and 86 to 89, available on the ESRB ’s website at : www.esrb.europa.eu. . 
3  See the International Monetary Fund, Staff Report for the 2015 Article IV Consultation, p.  47, and Financial Sector 
Assessment Program, August 2017, Technical note, selected issues on banking supervision, p p. 30 – 32, available 
on the IMF ’s website at : www.imf.org . 
ECB -PUBLIC  
2 1.2 To this end, the draft law empowers the Financial Sector Supervisory Commission (CSSF) to lay 
down the conditions for granting mortgages for residential property located in Luxembourg by 
lending institutions, insurance companies and professionals carrying out credit operations.  
1.3 More specifically, the CSSF may  define the following:  (a) upper limits for the ratio between the total 
credit obligations of a borrower  and the total market value of a given property ; (b) upper limits for 
the ratio of the total amount of a borrower’s repayment obligations resulting from a residential 
mortgage and the borrower’s total available annual income; (c) upper limits for the ratio between 
the borrower’s total indebtedness and t he borrower’s total available annual income;  (d) upper limits 
for the ratio between the total annual mortgage charges and the borrower’s total available annual 
income;  and (e) upper limits for a  loan’s initial repayment amount. These measures may be applie d 
alone or in combination and may refer to all or part of the amount of new loans. The CSSF may 
only adopt such measures once it receives a recommendation from the Systemic Risk Committee, 
and following  consultation with the BCL to reach a common position.  
1.4 The CSSF may ask the national authorities of other Member States to recognise the conditions set 
out for granting  mortgages for property located in Luxembourg and to apply them to the entities 
under their supervision. Conversel y, the CSSF may recognise conditions set down by the national 
authorities of other Member States  for granting loans for property located in those Member States 
and apply them to the entities under its supervision. The CSSF will take such measure only after  
receiving  a recommendation from  the Systemic Risk Committee and following  consultation with the 
BCL to reach a common position.  
1.5 The draft law also stipulates that the BCL has a right to access aggregate information available 
from State departments, public institutions apart from those placed under the supervision of the 
communes and other competent State authorities, as long as that information is necessary for its 
research and analysis work with regard to the role of the Systemic Risk Committee . As noted in the 
remarks accompanying the draft law, the BCL’s right to access such information will contribute to 
identifying the emergence of systemic risks in the financial system  as early as possible. The BCL’s 
right to access this information is strictly supervised through the BCL’s professional secrecy system 
as provided in Article 37 of Protocol (No 4) on the Statute of the European System of Central 
Banks and of the European Central Bank and Article 33 of the Organic Law of the BCL.  
 
2. Preliminary observa tion 
The ECB issued an opinion on the draft law establishing the Systemic Risk Committee  in 20144. The 
following observations are without prejudice to the recommendations made in that opinion, which are 
reiterated in this opinion , notably the principle tha t the ECB and the national central banks (NCBs) should 
play a leading role in macro- prudential oversight, given their expertise and existing responsibilities in the 
area of financial stability (point 5.2) and that any additional task that may be entrusted to the BCL with 
regard to macro- prudential policy must not affect the BCL’s institutional, functional and financial  
independence, or that of its G overnor .  
                                                 
4  See Opinion CON/2014/46. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.  
ECB -PUBLIC  
3  
3. General observations  
3.1 The ECB welcomes the draft law insofar as it equips the CSSF with new macro- prudential tools 
intended to remedy imbalances in the residential real estate sector , which result from overvaluation 
of residential property accompanied by excessive credit provision and may have significant 
negative implications for financial stability and the real economy. Against this background, the core 
objectives of the draft law seem appropriate, namely to create instruments that enable the CSSF to 
impose upper limits on the level of indebtedness of residential mortgage borrowers, with a view to 
strengthening the resilience of the financial system and counteract ing the cyclical  build -up of 
systemic risk, when deemed necessary. The objectives of the draft law are also in line with the 
principles set out in the ESRB’s Recommendation on intermediate objectives and instruments of 
macro -prudential policy, in particular with regard to the objective of  mitigat ing and prevent ing 
excessive credit grow th and leverage5.  
3.2 From a financial stability perspective, the ECB welcomes the implementation of a legislative 
framework for borrower -based measures in all euro area countries6. The ECB takes positive note 
of the fact that the CSSF may activate part or all of the above- described tools , thereby responding 
in a fle xible and proportionate way to potential risks to financial stability.  A thorough quantitative 
impact assessment is, however, important to verify the effect and appropriateness of the new tool s 
when they are activated.   
3.3 From a stati stical perspective, the ECB notes  the extended right of the BCL to access information 
available from state departments and public institutions . This is basically in line with Article 32 of 
the BCL Organic Law, which provides that, in order to undertake its tasks,  the BCL shall be 
empowered to collect the necessary statistical information, either from the competent national 
authorities or directly from economic agents. The BCL may likewise perform spot checks of the 
information from these authorities and economic agents, in accordance with relevant Community 
law provisions and within the competences of the ESCB and the ECB. However, the draft law, 
which concerns the research and analysis work of  the Systemic Risk Committee, should also 
provide for access to more granular information, to the extent and at the level of detail necessary 
for the performance of tasks of the ESCB . This would  be a necessary condition to the exercise of 
the analytical capabilities  of the BCL, also with regard to its role in the Systemic R isk Committee . 
  
                                                 
5  See paragraph 2.3 of Opinion CON/2017/21, paragraph 2.2 of Opinion CON/2017/11 and Recommendation of the 
Eurosystem Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macro- prudential 
policy (ESRB/2013/1) (OJ 170, 15.6.2013, p. 1).  
6  See paragraph 2.4 of Opinion CON/2017/21, paragraph 2.3. of Opinion CON/2017/11 and the Governing Council ’s 
statement on macro- prudential policies  of 15 December 2016, available on the ECB’s website at 
www.ecb.europa.eu.  
ECB -PUBLIC  
4 3.4 The ECB expects the Ministry of Finance to consult the ECB in accordance with Article 127( 4) of 
the Treaty on draft regulations that CSSF will enact under the draft law7.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main,  19 February  2018.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
7    See Opinion CON/2017/11, Section 2.4.