Financial stability is the ultimate goal of macroprudential policy. The Banco de Portugal has set out four intermediate objectives to ensure that this goal is more easily reached. Each intermediate objective corresponds to an indicative set of macroprudential tools, as described in the macroprudential toolkit. This set of tools is regularly assessed and can be reviewed, given the complexity and ongoing developments in the financial system. In addition, the Banco de Portugal may design other macroprudential measures it deems necessary to safeguard financial stability.
The Statute of the Banco de Portugal, the Legal Framework of Credit Institutions and Financial Companies as amended by Decree-Law No 23-A/2022 of 9 December 2022, which transposed into Portuguese law Directive (EU) 2019/878 (“CRD V”) and Regulation (EU) No 575/2013 (“CRR”), provides the legal basis for the implementation of these macroprudential measures.
Relationship between instruments and macroprudential policy intermediate objectives
Macroprudential policy instrument
Mitigate and prevent excessive credit growth and leverage
Mitigate and prevent excessive maturity mismatch and market illiquidity
Limit direct and indirect exposure concentrations
Limit incentives for excessive risk-taking by systemically important institutions
Source: Banco de Portugal
Capital requirements on the current legal framework
(1) The microprudential supervisory authority is responsible for setting the Common Equity Tier 1 (CET1) component required to comply with the Pillar 2 guidance.
(2) The sum of the systemic risk buffer and the O-SII buffer is capped at 5% of total exposures. This maximum limit can be exceeded upon authorisation by the European Commission.
(3) If a group, on a consolidated basis, is subject to a G-SII buffer and an O-SII buffer, the higher capital buffer of the two applies.
(4) The combined buffer requirement is made up of CET1.
(5) The Pillar 2 capital requirements are specific to each bank. They must be composed of at least 56.25% CET1 and at least 75% Additional Tier 1 Own Funds (AT1).
(6) The minimum requirement in CET1 is 4.5% of total exposures, in AT1 6% of total exposures, and in total own funds 8% of total exposures.
*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-SII / O-SII buffer and the systemic risk buffer (except where the latter only applies to risk exposures in the EU Member State which activated the measure, in which case it is cumulative).
Banks Leverage Ratio - the Portuguese case (December 2017)
Macro-prudential policy strategy (December 2015)
Macro-prudential policy in Portugal: objectives and instruments (December 2014)
A macro-prudential policy for financial stability (November 2013)