Opinion of the European Central Bank of 19 February 2018 on additional macro-prudential tools for residential mortgages (CON/2018/9)
Date: 2018-02-19
Institutions: European Central Bank
Subjects: Luxembourg, banking supervision, financial stability, national law, real estate credit, statistics

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 19 February 2018 

on additional macro-prudential tools for residential mortgages 

(CON/2018/9) 

Introduction and legal basis 

On  13  December  2017,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Luxembourg 

Ministry 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 (hereinafter 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,  fourth  and  sixth  indents  of  Article  2(1)  of  Council 
Decision 98/415/EC 1, as the draft law relates 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 Governing 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  prices 2,  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  

2  

3  

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). 
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.. 
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, pp. 30 – 32, available 
on the IMF’s website at: www.imf.org. 

 
 
 
 
                                                 
ECB-PUBLIC 

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 the 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 applied 

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. Conversely, 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 observation 

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 that 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 Governor.  

4  

See Opinion CON/2014/46. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 

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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  counteracting  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  mitigating  and  preventing 
excessive credit growth 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 countries 6. 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  flexible  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 tools 

when they are activated.  

3.3  From a statistical 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 Risk Committee. 

5  

6  

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).  
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. 

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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.  

ECB-PUBLIC 

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. 

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