The new competences of the National Bank of Belgium in terms of macroprudential policy
On 14 May 2014, the National Bank of Belgium held its first meeting as macro-prudential authority. Three years after the introduction of the "Twin Peaks" model, which conferred the responsibilities of micro-prudential supervision of financial institutions to the Bank, the Law of 25 April 2014 establishing the mechanisms of a macro-prudential policy, specified the specific tasks assigned to the National Bank of Belgium in the context of its mission to contribute to the stability of the financial system, and thus completed the reforms of the architecture of financial supervision in Belgium in the aftermath of the financial crisis by enhancing the integration of the macro and micro-prudential dimensions within the Bank.
Henceforth, the Bank will be formally responsible for identifying and monitoring systemic risk and will have tools at its disposal to prevent or mitigate this risk, in order to protect and enhance the resilience of the Belgian financial system. In case of the emergence of systemic risks, the Bank will have at its disposal a wide range of tools and will have the power to issue recommendations to the authorities which may contribute to combating the systemic risks identified.
In this context, the Bank needs to have access to all relevant information. For this reason, the law for instance authorizes the Bank to collect any useful information, not only from institutions under its supervision, but also from any entity that could create systemic risks. As required by the law, the Bank will publish the decisions relating to the exercise of its macro-prudential policy mandate, unless this creates risks for financial stability.
In line with the European regulatory framework, the Bank, as macro-prudential authority, will cooperate with both the European Central Bank - in the context of the macro-prudential policy competences conferred to it by the regulation on the Single Supervisory Mechanism - and the European Systemic Risk Board, in view of their responsibilities in relation to the oversight of the European financial system. In addition, where required, the Bank will consult with other national authorities in relation to developments potentially detrimental to financial stability.
The Board of the Bank in its competences of macro-prudential authority will meet at least 3 times a year.
During its first meeting, the NBB discussed the evolution of risks and vulnerabilities of the Belgian financial sector. While financial market conditions further improved in recent months, the current macroeconomic environment - characterized by moderate growth and very low interest rates - and to some extent, the progressive introduction of new capital and liquidity requirements - remains challenging for Belgian financial institutions. In this context, the NBB expects financial institutions to maintain sufficient capital buffers in view of the challenging environment. The NBB also continues to closely monitor the situation of the real estate market and the impact of the micro and macro-prudential measures taken by it in 2013 for Belgian residential mortgage loans.
The evolution of the financial risks will be discussed in more details in the forthcoming Financial Stability Review (publication 12 June 2014).
In addition, the NBB has taken two decisions in its first meeting:
- The first decision relates to specific measures with respect to the banks’ trading activities, complementing the recent decisions of the Government. In line with a recommendation from the Bank’s report on structural banking reforms in Belgium and in line with Article 123 of the Law of 25 April 2014 on the status and supervision of credit institutions (hereinafter called “the banking law”), the Bank has decided to impose a supplementary capital requirement for trading activities that exceed the thresholds as defined in Article 12 of the NBB Regulation related to banks’ trading activities 1 . At the current juncture, no institution has exceeded the defined thresholds. This supplementary requirement will be applied through Pillar 2 as a macro-prudential measure, in accordance with Articles 103 and 104 of the European CRD IV transposed by Article 154 of the banking law. The Bank considers that certain trading activities might generate systemic risks as highlighted by the recent financial crisis. Indeed, one of the singular features of the 2007-2008 financial crisis was the role played by banks’ trading activities, both in causing the crisis and in making it globally systemic. The trading by banks of complex financial products with exposures to US subprime mortgage loans effectively allowed problems in one segment of the real estate market in one country to generate a negative impact on banks around the world. In addition, interconnectedness of banks, created in large part through trading activity, combined with high concentrations of certain types of traded instruments in a small number of institutions, created second-round effects that caused the initial crisis to become acute, threatening the global financial system.
In order to implement the restrictions on allowed trading activities outlined in Articles 122 and 123 of the banking law, the Bank has drafted a regulation specifying a framework of procedures and limits relating to the governance and risk management of banks’ trading activities. This framework is designed to ensure that the risk of banks’ trading activities is appropriately managed, that adequate internal control mechanisms are in place and that the trading activities undertaken by banks conform to the categories of allowable activities and to the associated risk limits that are specified in the banking law.
- The second one concerns the communication of the Bank’s macro-prudential analysis which is required by law. From 2015 onwards, the NBB Financial Stability Review (FSR) will become the report of the Bank in its competences as macro-prudential authority. Besides a full overview of the financial stability conditions in Belgium and a detailed analysis of the main risk drivers and vulnerabilities of the Belgian financial sector, the FSR will include the main activities of the Bank as macro-prudential authority and also its macro-prudential policy stance.
 NBB Regulation of 1 April 2014 relative to property trading activities, approved by RD of 25 April 2014