Recommendation of the European Systemic Risk Board of 21 September 2011 on le... (32011Y1122(01))
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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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