Recommendation of the European Systemic Risk Board of 21 September 2011 on le... (32011Y1122(01))
Recommendation of the European Systemic Risk Board of 21 September 2011 on lending in foreign currencies (ESRB/2011/1)
- RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD
- of 21 September 2011
- on lending in foreign currencies
- (ESRB/2011/1)
- SECTION 1
- RECOMMENDATIONS
- Recommendation A –
- Risk awareness of borrowers
- Recommendation B –
- Creditworthiness of borrowers
- Recommendation C –
- Credit growth induced by foreign currency lending
- Recommendation D –
- Internal risk management
- Recommendation E –
- Capital requirements
- Recommendation F –
- Liquidity and funding
- Recommendation G –
- Reciprocity
- SECTION 2
- IMPLEMENTATION
- 1.
- Interpretation
- 2.
- Criteria for implementation
- 3.
- Timeline for the follow-up
- 4.
- Monitoring and assessment
- ANNEX
- ESRB RECOMMENDATIONS ON FOREIGN CURRENCY LENDING
- EXECUTIVE SUMMARY
- I.
- OVERVIEW OF FOREIGN CURRENCY LENDING IN THE UNION
- I.1.
- Foreign currency lending in the Union
- Chart 1
- Foreign currency lending to households and non-financial corporations in the Union
- Chart 2
- Foreign currency lending to non-monetary financial institutions private sector (excluding general government)
- (4)
- in the Union
- Chart 3
- Shares of foreign currency loans and foreign currency deposits in selected Member States
- Chart 4
- Share of foreign currency loans and loan-to-deposit ratios in selected Member States
- I.2.
- Drivers of foreign currency lending expansion
- I.2.1.
- Supply-side factors
- I.2.1.1.
- International versus domestic funding
- Chart 5
- Foreign currency loans and domestic currency loan-to-deposit ratios in selected Member States
- I.2.1.2.
- Growing presence of foreign groups in the CEE countries
- Chart 6
- Share of foreign-controlled subsidiaries and branches assets, in total banking sector (%)
- I.2.1.3.
- Competition pressures
- I.2.2.
- Demand-side factors
- I.2.2.1.
- Interest rate differentials
- Interest rate differentials for loans to households in domestic currency and in euro
- (p.p.)
- Chart 7
- Countries with pegs and fixed exchange rates
- Chart 8
- Countries with floating exchange rates
- Chart 9
- Interest rate differentials for loans in domestic currency and in Swiss francs in Hungary, Austria and Poland (in p.p.)
- I.2.2.2.
- Perception of exchange rate risk and euro-adoption expectations
- II.
- RISKS STEMMING FROM FOREIGN CURRENCY LENDING
- II.1.
- Credit risk influenced by exchange rate and foreign interest rate changes
- II.2.
- Funding and liquidity risks
- II.3.
- Excessive credit growth, risk mispricing and potential asset price bubbles
- Chart 10
- Share of foreign currency loans and credit-to-GDP ratio in selected Member States
- Chart 11
- Differences in share of foreign currency loans and in credit-to-GDP ratio in selected Member States
- (p.p.)
- Chart 12
- Housing prices and credit growth in selected Member States (%)
- II.4.
- Concentration and spillover effects between home and host countries as risks to financial stability in the Union
- Chart 13
- Share of claims towards host countries’ banking systems by home countries (as of end 2010)
- Chart 14
- Share of banking claims towards host countries in the overall international banking claims
- Chart 15
- Banking claims towards host countries in the group of home countries with largest exposures at the end of 2010 (USD bn)
- II.4.1.
- Case-studies on cross-border spillovers: Austria and Sweden
- BOX 1:
- The Austrian experience from Austrian banks’ foreign currency lending in CEE countries and the Commonwealth of Independent States
- BOX 2:
- The Swedish experience from Swedish banks’ foreign currency lending in the Baltic States
- II.5.
- Higher volatility of capital adequacy ratios due to exchange rate changes
- II.6.
- Hindered monetary policy transmission channels
- Chart 16
- Foreign currency loans and exchange rate adjustment (Max. % change from 7/2008 until 6/2009)
- Chart 17
- Foreign currency loans and reserves losses (Min. % change from 7/2008 until 6/2009)
- Chart 18
- Foreign currency loans and interest rates (Max. bp change from 7/2008 until 6/2009)
- Chart 19
- Foreign currency loans and money supply (Min. % change from 7/2008 until 6/2009)
- II.7.
- Likelihood that, and conditions in which, risks may materialise
- III.
- POLICY ACTIONS AT THE NATIONAL LEVEL
- III.1.
- Policy measures adopted by different countries
- BOX 3:
- The Vienna Initiative and cases of coordination between home and host authorities
- III.2.
- Assessment of the effectiveness of policy measures
- IV.
- ESRB RECOMMENDATIONS
- POLICY OBJECTIVES
- PRINCIPLES FOR THE IMPLEMENTATION OF RECOMMENDATIONS
- FOLLOW-UP COMMON TO ALL RECOMMENDATIONS
- CREDIT AND MARKET RISKS
- IV.1.
- Recommendation A – Risk awareness of borrowers
- IV.1.1.
- Economic reasoning
- IV.1.2.
- Assessment, including advantages and disadvantages
- IV.1.3.
- Follow-up
- IV.1.3.1.
- Timing
- IV.1.3.2.
- Compliance criteria
- IV.1.3.3.
- Communication on the follow-up
- IV.1.4.
- Connections to the Union legal framework
- IV.2.
- Recommendation B – Creditworthiness of borrowers
- IV.2.1.
- Economic reasoning
- IV.2.2.
- Assessment, including advantages and disadvantages
- IV.2.3.
- Follow-up
- IV.2.3.1.
- Timing
- IV.2.3.2.
- Compliance criteria
- IV.2.3.3.
- Communication on the follow-up
- IV.2.4.
- Connections to the Union legal framework
- CREDIT GROWTH
- IV.3.
- Recommendation C – Credit growth induced by foreign currency lending
- IV.3.1.
- Economic reasoning
- IV.3.2.
- Assessment, including advantages and disadvantages
- IV.3.3.
- Follow-up
- IV.3.3.1.
- Timing
- IV.3.3.2.
- Compliance criteria
- IV.3.3.3.
- Communication on the follow-up
- IV.3.4.
- Connections to the Union legal framework
- RISK MISPRICING AND RESILIENCE
- IV.4.
- Recommendation D – Internal risk management
- IV.4.1.
- Economic reasoning
- IV.4.2.
- Assessment, including advantages and disadvantages
- IV.4.3.
- Follow-up
- IV.4.3.1.
- Timing
- IV.4.3.2.
- Compliance criteria
- IV.4.3.3.
- Communication on the follow-up
- IV.4.4.
- Connections to the Union legal framework
- IV.5.
- Recommendation E – Capital requirements
- IV.5.1.
- Economic reasoning
- IV.5.2.
- Assessment, including advantages and disadvantages
- IV.5.3.
- Follow-up
- IV.5.3.1.
- Timing
- IV.5.3.2.
- Compliance criteria
- IV.5.3.3.
- Communication on the follow-up
- IV.5.4.
- Connections to the Union legal framework
- LIQUIDITY AND FUNDING RISKS
- IV.6.
- Recommendation F – Liquidity and funding
- IV.6.1.
- Economic reasoning
- IV.6.2.
- Assessment, including advantages and disadvantages
- IV.6.3.
- Follow-up
- IV.6.3.1.
- Timing
- IV.6.3.2.
- Compliance criteria
- IV.6.3.3.
- Communication on the follow-up
- IV.6.4.
- Connections to the Union legal framework
- UNION-WIDE COORDINATION AND SCOPE
- IV.7.
- Recommendation G – Reciprocity
- IV.7.1.
- Economic reasoning
- IV.7.2.
- Assessment, including advantages and disadvantages
- IV.7.3.
- Follow-up
- IV.7.3.1.
- Timing
- IV.7.3.2.
- Compliance criteria
- IV.7.3.3.
- Communication on the follow-up
- OVERALL ASSESSMENT OF THE POLICY MEASURES
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