CSSF Regulation No 16-02 of 29 March 2016 on the setting of the countercyclical buffer rate for the second quarter of 2016

CSSF Regulation No 16-02 on the setting of the countercyclical buffer rate for the second quarter of 2016 (Mémorial A – No. 59 of 12 April 2016)

The Directorate of the Commission de Surveillance du Secteur Financier,

Having regard to Article 108bis of the Constitution;

Having regard to the Law of 23 December 1998 establishing a commission for the supervision of the financial sector, and in particular Article 9, paragraph (2);

Having regard to the Law of 5 April 1993 relating to the financial sector ('LSF'), and in particular Article 59-7, pursuant to which the CSSF, as the designated authority, and after consultation with the BCL, is responsible for setting the countercyclical buffer rate applicable to Luxembourg;

Having regard to CSSF Regulation No 15-01 on the calculation of the specific countercyclical capital buffer rate, transposing Article 140 of Directive 2013/36/EU;

Having regard to CSSF Regulation No 15-04 on the setting of the countercyclical buffer rate;

Having regard to CSSF Regulation No 15-05 concerning the exemption of investment firms qualifying as small and medium-sized enterprises from the requirements of the countercyclical capital buffer and the capital conservation buffer;

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, and in particular Articles 130, 135 and 136;

Having regard to Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions ('SSM Regulation'), and in particular Article 5;

Having regard to the Recommendation of the European Systemic Risk Board of 18 June 2014 on guidelines on the setting of countercyclical buffer rates ('ESRB/2014/1 Recommendation');

Having regard to the Recommendation of the Systemic Risk Board (CRS/2016/001) of 15 February 2016 concerning the setting of the countercyclical buffer rate for the second quarter of the year 2016;

Having regard to the decision of the ECB, in application of Article 5 of the SSM Regulation, not to oppose the intention of the CSSF to take the macro-prudential measures subject to this Regulation;

Having regard to the opinion of the Prudential Regulation Advisory Committee;

HEREBY ADOPTS THIS REGULATION:

Article 1 Applicable countercyclical buffer rate

Based on the documented elements in Annex 1 and the recommendation of the Systemic Risk Board of 15 February 2016 concerning the setting of the countercyclical buffer rate for the second quarter of the year 2016, documented in Annex 2, the countercyclical buffer rate applicable to relevant exposures located in Luxembourg is maintained at 0% for the second quarter of the year 2016.

Article 2 Entry into force

This Regulation shall enter into force on 1 April 2016.

Article 3 Publication

This Regulation shall be published in the Mémorial and on the website of the Commission de Surveillance du Secteur Financier.

Luxembourg, 29 March 2016

COMMISSION DE SURVEILLANCE DU SECTEUR FINANCIER

Françoise KAUTHEN General Director

Claude SIMON

Simone DELCOURT

Claude MARX

Annex 1: Elements considered for the setting of the applicable countercyclical buffer rate Annex 2: Recommendation of the Systemic Risk Board of 15 February 2016 concerning the setting of the countercyclical buffer rate for the second quarter of the year 2016 (CRS/2016/001)

Annex 1: Elements considered for the setting of the applicable countercyclical buffer rate

Pursuant to paragraphs 2 and 3 of Article 59-7 of the LSF and the ESRB/2014/1 Recommendation, the setting of the rate is based on the following indicators:

a) The credit-to-GDP ratio, calculated based on bank loans granted to Luxembourgish households and non-financial enterprises1, is 83.2% as of the 3rd quarter of 2015 (Figure 1).

b) The deviation of the credit-to-GDP ratio from its long-term trend is -8.5% (Figure 2).

c) The reference countercyclical buffer rate calculated in accordance with the ESRB/2014/1 Recommendation is 0% (Figure 2).

These indicators do not reveal excessive credit growth granted to the economy by actors of the national financial system. These same indicators based on alternative credit measures proposed by the European Central Bank, the Bank for International Settlements and the Central Bank of Luxembourg have all led to similar results with negative credit-to-GDP ratio deviations, well below the reference threshold of 2% set in the ESRB/2014/1 Recommendation.

Other variables were taken into account insofar as they may signal an accumulation of systemic risks related to excessive credit growth, such as credit dynamics, measures of potential overvaluation of real estate prices as well as measures related to the macroeconomic environment. The analysis shows that credit dynamics remain stable and in line with economic growth, that macroeconomic fundamentals are strengthening, whether in terms of GDP, the trade balance or employment, and that the resilience of banks measured by their capitalization or leverage level is stable.

1 Data modified after neutralization of the accounting reclassification of a non-financial enterprise in June 2015.

Figure 1: Credit-to-GDP ratio and its long-term trend Figure 2: Deviation of the credit-to-GDP ratio from its long-term trend and countercyclical buffer reference rate

Annex 2: RECOMMENDATION OF THE SYSTEMIC RISK BOARD of 15 February 2016 concerning the setting of the countercyclical buffer rate for the second quarter of the year 2016 (CRS/2016/001)

THE SYSTEMIC RISK BOARD,

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 and its Article 130 concerning the specific countercyclical capital buffer requirement and following, and paragraphs 2 of Articles 129 and 130 allowing the exemption of small and medium-sized investment firms from the capital conservation buffer and countercyclical capital buffer requirements,

Having regard to Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions and in particular its Article 5 (hereinafter 'SSM Regulation'),

Having regard to the Law of 5 April 1993 relating to the financial sector and in particular its Articles 59-1, 59-2, 59-5, 59-6 and 59-7 (hereinafter 'Law of 5 April 1993'),

Having regard to CSSF Regulation No 15-01 on the calculation of the specific countercyclical capital buffer rate,

Having regard to CSSF Regulation No 15-04 on the setting of the countercyclical buffer rate,

Having regard to CSSF Regulation No 15-05 concerning the exemption of investment firms qualifying as small and medium-sized enterprises from the requirements of the countercyclical capital buffer and the capital conservation buffer,

Having regard to the Law of 1 April 2015 establishing a Systemic Risk Board and amending the modified Law of 23 December 1999 relating to the monetary status and the Central Bank of Luxembourg, and in particular Article 2, paragraph e) and Article 7 ('CRS Law'),

Having regard to the internal regulations of the Systemic Risk Board of 16 November 2015 and in particular Article 9, Article 11 and Article 12,

Having regard to Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises,

Having regard to the Recommendation of the European Systemic Risk Board (ESRB) of 18 June 2014 on guidelines on the setting of countercyclical buffer rates,

Having regard to the Recommendation of the European Systemic Risk Board (ESRB) of 4 April 2013 on intermediate objectives and instruments of macroprudential policy,

HAS ADOPTED THIS RECOMMENDATION:

Part 1 Recommendation on the setting of the countercyclical capital buffer rate for the second quarter of 2016

Recommendation A: Calibration of the countercyclical capital buffer

Based on the various quantitative and qualitative elements, annexed to this recommendation, and in particular based on the reference for countercyclical capital buffers calculated in application of Article 59-7(2) of the Law of 5 April 1993, the Systemic Risk Board recommends that the designated authority set the countercyclical buffer rate for the second quarter of 2016 at 0%.

Recommendation B: Notifications

Based on this, the Systemic Risk Board invites the designated authority to carry out the various required notifications, in particular under Article 59-7(7) of the Law of 5 April 1993 as well as Article 5(1) of the SSM Regulation.

Part 2 Implementation of the recommendation

1. Interpretation

a) The terms used in this recommendation have the same meaning as in the Law of 5 April 1993.

b) The annex forms an integral part of this recommendation.

2. Follow-up

a) The Systemic Risk Board invites the CSSF, as the recipient of this recommendation, to communicate as soon as possible to the Systemic Risk Board via the secretariat the follow-up given to this recommendation.

b) The Systemic Risk Board invites the committee secretariat to proceed with the publication of this recommendation on the website of the Systemic Risk Board2.

2 Given that the CRS website is under construction, the recommendation will be published on the BCL website.

3. Monitoring and evaluation

1. The secretariat of the Systemic Risk Board:

a) provides its assistance to the CSSF, in order to facilitate the implementation of the recommendation;

b) prepares a report on the follow-up given to this recommendation and shares it with the Systemic Risk Board.

2. The Systemic Risk Board evaluates and monitors the responses reserved by the CSSF to this recommendation.

Done in Luxembourg, 15 February 2016.

The President of the Systemic Risk Board

Annex – Methodology of the countercyclical capital buffer rate and calculation of the reference rate

The formula allowing the calculation of the deviation (or gap) of the credit-to-GDP ratio from its long-term average is described in the annex of the recommendation issued by the CRS, on 16 November 2015:

The evolution of the credit-to-GDP ratio and its long-term trend, its deviation from this trend and its guide (reference buffer rate calculated at the estimated gap) are presented below. The data used include loans granted by Luxembourgish banks to Luxembourgish households and non-financial enterprises.

Graph 1: Ratio of bank credit to GDP (%) and its trend extracted according to the HP filter

Graph 2: Deviation from the trend (Gap) and reference rate of the countercyclical capital buffer

It appears from these graphs that the deviation of the credit-to-GDP ratio is negative and that the reference rate remains at 0%.

This result is confirmed by the analyses conducted by the BCL and the CSSF adopting a set of measures suggested by the ESRB recommendation regarding the activation of the capital buffer.