The Government has today adopted a Royal Decree-Law to provide supervisory bodies with new macroprudential tools. Simultaneously, the Ministry of Economy and Business has published for Public Hearing the draft of the Royal Decree for the creation of the Macroprudential Authority Financial Stability Council (AMCESFI).
- The Bank of Spain will have additional mechanisms to limit the granting of credit, set limits on sectoral concentration and be able to set a cushion of sectoral countercyclical capital.
- Additionally, the National Securities Market Commission is provided with tools to set liquidity requirements and the General Directorate of Insurance and Pension Funds to set limits on exposure to certain sectors or assets, as well as the transfer of risks and portfolios .
- With the approval of these instruments, Spain is a pioneer in the inclusion of macroprudential tools in the field of investment funds and insurance.
The Council of Ministers has approved a Royal Decree-Law (RDL) that provides the Bank of Spain, the National Securities Market Commission and the General Directorate of Insurance and Pension Funds with new macroprudential tools. The objective is that the supervisory bodies have the appropriate instruments to prevent and mitigate possible risks with the capacity to generate a disturbance in the provision of financial services that could end up affecting the real economy.
This extension of competences is part of the creation of the Macroprudential Authority Financial Stability Council (AMCESFI), whose draft Royal Decree of constitution has today brought to the Public Hearing the Ministry of Economy and Business.
The incorporation into the national legal system of a broad catalog of macroprudential supervision instruments, together with the creation of a national macroprudential authority are essential to identify and prevent systemic risks.
New macroprudential tools
The Royal Decree-Law provides the Bank of Spain with the capacity to establish direct quantitative restrictions on the granting of credit, complementing the instruments available for indirect action through the increase in capital requirements. To establish these limits, the Bank of Spain may take into account, among other factors, the relationship between the nominal amount of the loan and the value of the guarantee (“Loan-to-Value” ratio), or the relationship between the periodic payment of interest and the borrower's periodic income (“Debt Service to Income” ratio).
This typology of macroprudential tools is already included in the legal systems of our counterpart countries.
Additionally, the Bank of Spain is authorized to limit the concentration of exposures at the sector level or establish a countercyclical capital cushion relative to a subset of exposures to counterparties of the same sector.
On the other hand, in order to comply with the recommendations of the European Systemic Risk Board and the European Central Bank, the National Securities Market Commission is empowered so that, under certain circumstances, it may require the group of entities under its supervision the maintenance of a minimum volume of especially liquid assets to be able to deal with requests for withdrawal of funds in a context of market tensions.
This new macroprudential liquidity tool and the existing one related to leverage limits are similar to those of the banking sector. This approval between the securities sectors and credit institutions will allow them to be activated in a coordinated manner, which reduces the possibility of risk transmission.
Finally, in the case of the insurance sector, the General Directorate of Insurance and Pension Funds is authorized to establish limits on exposure to certain sectors of economic activity and asset categories and to risk transfer operations and insurance portfolios.
With the approval of these instruments, Spain is a pioneer in the inclusion of macroprudential tools in the field of investment funds and insurance.
Macroprudential Authority Financial Stability Board
Simultaneously, the Ministry of Economy and Business has published for public hearing the text of the Royal Decree on the creation of the Macroprudential Authority Financial Stability Council (AMCESFI), so that institutions, organizations and citizens can make allegations.
AMCESFI is expected to be a collegiate body, without its own legal personality, attached to the Ministry of Economy and Business, with functional independence. Its objective will be to prevent and mitigate systemic risk for financial stability.
In its design it is necessary to highlight two relevant aspects: its independence and transversal character. The management of macroprudential tools is left to the sector supervisors, respecting their scope of action and expert knowledge, who must communicate in advance to AMCESFI their intention to activate, recalibrate or deactivate any of the macroprudential tools.
The text of the Royal Decree establishes that the analysis of possible systemic risk factors are functions of AMCESFI; the issuance of opinions; the publication of alerts and the making of recommendations to sector supervisors.
As regards the structure, the new macroprudential authority is expected to have a Council and a Technical Committee. The Royal Decree also includes provisions related to transparency and accountability.
