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Macroprudential measures

Financial stability is the ultimate goal of macroprudential policy. Banco de Portugal has defined four intermediate objectives to ensure that this utter aim is more easily achieved. To each intermediate objective corresponds an indicative set of macroprudential instruments, as described in the macroprudential toolkit. This list of instruments is regularly evaluated and should not be considered at any moment as closed, as the complexity and ongoing evolution of the financial system may require a revision of the toolkit. Additionally, Banco de Portugal may design other macroprudential measures that it considers as necessary to maintain financial stability.

The Organic Law of Banco de Portugal, the Legal Framework of Credit Institutions and Financial Companies (in Portuguese only) as amended by Decree-Law No. 157/2014 of 24 October, which transposed into national legislation Directive 2013/36/EU (CRD IV), and the Regulation (EU) No. 575/2013 (CRR) provide the legal basis for the implementation of these macroprudential measures.

Relationship between instruments and macroprudential policy intermediate objectives

Intermediate objective

Macroprudential policy instrument

Mitigate and prevent excessive credit growth and leverage

  • Countercyclical capital buffer (CCB)
  • Sectoral capital requirements
  • Limits on the loan-to-value ratio (LTV)
  • Limits on the loan-to-income ratio (LTI) or the debt service-to-income ratio (DSTI)

Mitigate and prevent excessive maturity mismatch and market illiquidity

  • Loan-to-deposit ratio

Limit direct and indirect exposure concentrations

  • Systemic risk buffer (SRB)
  • Large exposure restrictions

Limit incentives for excessive risk-taking by systemically important institutions

  • Capital buffer for other systemically important institutions (O-SIIs)

Source: Banco de Portugal

 

Capital requirements on the current legal framework

*Each institution is required to comply with a combined buffer requirement that corresponds to the sum of the capital conservation buffer, the institution-specific countercyclical capital buffer and the higher of the G-SIIs / O-SIIs buffer and the systemic risk buffer (except when the latter only applies to risk exposures in the EU Member State which activated the measure, in which case it is additive).

 

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