## EXECUTIVE SUMMARY (1espea2024005-print-pdf) ## Source details **Canonical URL:** [EXECUTIVE SUMMARY (1espea2024005-print-pdf)](https://www.imf.org/-/media/files/publications/cr/2024/english/1espea2024005-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1espea2024005-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1espea2024005-print-pdf.pdf.json) --- ### Overview of recent reforms and current assessment - The macroprudential policy framework in Spain has been significantly reinforced, including establishment of the Macroprudential Authority Financial Stability Council (AMCESFI). - Techniques and approaches for systemic risk identification have been enhanced; gaps in the macroprudential policy toolkit identified by the previous FSAP have been closed, although the new tools have not been applied to date given the assessment of risks. - The framework incorporates many areas of strength by international standards, such as the techniques for systemic risk identification and the breadth of permissible macroprudential tools. ### AMCESFI: role, strengths, and areas for reinforcement - Establishment and mandate: - AMCESFI established in March 2019; membership brings together MINECO, BdE, CNMV, and DGSFP. - Responsibilities include systemic risk oversight, ensuring effective policy coordination, powers to issue warnings and recommendations, and to issue opinions on policy measures proposed by sectoral member authorities (BdE, CNMV, DGSFP), with sectoral authorities retaining final responsibility for policy proposal, adoption and implementation. - Strengths: - Strengthened high-level coordination and bolstered institutional framework supporting financial stability. - Identified scope for reinforcement: - AMCESFI Council meets less frequently relative to peers and no summary minutes of meetings are published. - AMCESFI Annual Report typically published with a time lag of nine to ten months. - Recommendations to strengthen role, credibility, transparency, and accountability: - Hold regular AMCESFI Council meetings at least quarterly rather than a minimum of half-yearly. - Publish summary minutes of Council meetings and timely Annual Reports. - Sharpen communication of Council judgements on major systemic risks and policy actions, building on sectoral authorities’ financial stability publications and AMCESFI cross-sectoral analysis. - Consider adding external macroprudential policy experts (e.g., well-respected academics) to strengthen internal challenge and decision quality. - Review AMCESFI’s potential broader high-level coordination role on specific financial stability topics (example: climate change risks; first biennial report published in September 2023). - Complete the first internal performance review of AMCESFI as mandated in the Royal Decree establishing the macroprudential authority. ### Systemic risk identification and data priorities - Upgrades and methods: - Frameworks for systemic risk identification upgraded; Spain uses advanced methods and approaches. - Data and cross-agency work priorities: - Continue investment in improving data and information on individual borrower income and cross-border exposures of investment funds (as part of European and global initiatives). - Facilitate availability of granular information on domestic fund investments in other non-domestic funds. - Deepen cross-agency work under AMCESFI on system-wide topics: system-wide liquidity risk from household deposits switching to insurance products and investment funds; business model risks from bancassurance; cyber risks. ### Macroprudential toolkit: scope, limitations, and NBFI focus - Scope and integration: - The policy toolkit is broad by international standards: comprehensive tools for banking sector risks and an extensive set of tools to address systemic risks from NBFI. - Limitations and operational issues: - Some tool activations are in the hands of individual participants (e.g., fund managers) whose incentives may not align with system-wide objectives. - Authorities’ work on system-wide risks from episodes of rapidly evolving market stress is hampered by a shortage of information. - Recommendations to strengthen toolkit effectiveness: - Strengthen reporting requirements so CNMV is immediately notified of activation of policy tools in the hands of fund managers and investment firms. - Enhance capability to monitor fund and firm behavior under stressed conditions to inform tool activation decisions. - Continue active participation in Financial Stability Board and global standard-setting bodies and implement main conclusions and recommendations when available. - Increase CNMV staff with technical skills on big data analysis. - Continue addressing data and information gaps to enhance financial stability analysis and development and application of macroprudential instruments. ### Current macroprudential stance and capital buffer recommendation - Current stance: - Authorities have adopted a neutral cyclical macroprudential policy stance for the banking sector in recent years. - Apart from higher capital buffers for systemically important credit institutions, no other instruments have been deployed in the banking sector. - The countercyclical capital buffer (CCyB) rate has remained at 0 percent since inception in 2016; no sectoral or borrower-based measures introduced. - The FSAP supports the current neutral policy stance; no major cyclical or structural imbalance warranting deployment of a policy tool was detected. - Recommendation: - Introduce a positive neutral CCyB for credit institutions in Spain to provide additional resilience and policy space to ensure banks can continue lending in the event of major adverse structural shocks. - As of early 2024, the BdE is actively considering the case for introducing a positive neutral CCyB; the FSAP supports adoption. - Review and, where feasible, simplify and streamline administrative and consultation procedures BdE must follow before final decisions to activate macroprudential tools, to shorten lengthy implementation lags. ### Consolidated main recommendations (selected, as presented in Table 1) - Increase frequency of AMCESFI Council meetings to at least quarterly. [¶31] — AMCESFI, MINECO — I - Publish minutes / summaries of Council meetings and timely Annual Reports. [¶33] — AMCESFI, MINECO — I - Strengthen communication of AMCESFI’s assessment of major systemic risks and vulnerabilities. [¶33] — AMCESFI — ST - Review appointment of 2 or 3 external macroprudential experts to AMCESFI Council. [¶32] — AMCESFI, MINECO — ST - Consider AMCESFI taking on broader high-level coordination role on cross-cutting topics (e.g., cyber risk, crisis management planning). [¶34] — AMCESFI — ST - Complete first internal performance review of AMCESFI as mandated. [¶35] — MINECO — I - Continue addressing data and information gaps to enhance analysis and development of macroprudential instruments. [¶43] — MINECO, BdE, CNMV, DGSFP, AMCESFI — ST - Increase CNMV staff with big data analysis skills. [¶44] — CNMV — ST - Introduce a positive neutral CCyB for the banking sector. [¶71] — BdE, AMCESFI — ST - Review options to simplify and streamline domestic consultation and administrative processes to shorten implementation lag. [¶64] — AMCESFI — ST - Review and strengthen notification/permissioning requirements on funds and other NBFI providers to inform the supervisor of activation of all policy instruments and tools. [¶67] — CNMV, AMCESFI — I - Continue active engagement in European and global fora on NBFI systemic risk frameworks and implement conclusions when available. [¶65] — MINECO, BdE, CNMV, DGSFP, AMCESFI — ST *Source: EXECUTIVE SUMMARY, Spain: IMF Financial Sector Assessment Program Technical Note (selected excerpts).* --- ### The macroprudential policy framework has been significantly upgraded and enhanced (Chapter highlights) ### Institutional upgrades and mandate - AMCESFI created in 2019, addressing recommendations from the 2017 FSAP and the 2011 ESRB request to designate a macroprudential authority. - Royal Decree provisions clarified implementation of macroprudential tools; BdE Circular 5/2021 detailed new tools, indicators and approaches. ### Mandate, powers, and European integration - AMCESFI provides high-level oversight, issues warnings/recommendations/opinions, monitors systemic risk, and is tasked to “ensure the financial system makes a sustainable contribution to economic growth.” - Sectoral authorities (BdE, CNMV, DGSFP) retain proposal/adoption/implementation powers; national framework integrated with ESRB and Banking Union SSM. - Article 458 of the CRR allows national application of stricter requirements; ECB can implement more stringent ‘top up’ measures than national authorities. ### Governance, meeting cadence, and support arrangements - Council chaired by the Minister of Economy, Trade and Enterprise; Governor of BdE is Vice Chair. - Supported by Financial Stability Technical Committee (FSTC), chaired by the Deputy Governor of BdE. - Meeting requirements: - Council must meet at least once every six months; FSTC meets at least quarterly. - No dedicated Secretariat or staff; support provided by member authorities. Royal Decree specifies AMCESFI measures “shall not involve an increase in remuneration, resources or other staff costs.” ### Accountability and transparency - Accountability mechanisms: Annual Report and Parliamentary hearing; Annual Report typically published in September or October of the subsequent year. - Annual Report for 2022 published in January 2024 (delayed). - AMCESFI does not publish minutes or summaries of Council or FSTC meetings; website contains reports and membership/mandate details. ### Application in practice and activity statistics (2019–2023) - Notifications and opinions: - Each year AMCESFI notified of a minimum of six measures by BdE (including CCyB and G-SII/O-SII buffers). - CCyB has been 0 percent since 2016; AMCESFI confirmed support at inaugural meeting in April 2019 and has not issued an opinion to date in absence of proposed change. - AMCESFI published formal opinions in 2021 and 2023 on O-SII buffer proposals supporting BdE proposals. - BdE has not proposed other macroprudential measures since AMCESFI’s inception. - CNMV notified AMCESFI in 2020 of a temporary ban on short selling during pandemic; AMCESFI did not publish a formal opinion due to immediate implementation. - Warnings and Recommendations: AMCESFI has not issued any formal warnings or recommendations to date. - Financial structure highlights (Share of financial system in June 2023 (%) and Share of GDP in June 2023 (%)): - Credit Institutions: Share of financial system 74.8; Share of GDP 285.3 - Securities Markets (including Investment Funds): Share of financial system 6.9; Share of GDP 26.3 - Insurance Companies and Pension Funds: Share of financial system 8.0; Share of GDP 30.7 - Other Institutions: Share of financial system 10.3; Share of GDP 39.1 - Overall: System-wide Share of financial system 100; Share of GDP 381.4 - Note: “Assets of deposit taking institutions (banks) in Spain are some two-thirds of total financial system assets.” - AMCESFI activity (Number of Meetings): - AMCESFI Council: 2019: 2; 2020: 5; 2021: 3; 2022: 2; 2023: 3 - FSTC: 2019: 3; 2020: 12; 2021: 4; 2022: 9; 2023: 4 - Combined Total: 2019: 5; 2020: 17; 2021: 7; 2022: 11; 2023: 7 - Domestic Measures notified to AMCESFI annually: 2019: 6; 2020: 7; 2021: 6; 2022: 6; 2023: 6 - Opinions Published: 2019: 0; 2020: 0; 2021: 1; 2022: 0; 2023: 1 - Warnings and Recommendations: 2019–2023: 0 each year - Annual Report Published: 2019: —; 2020: July 2020; 2021: October 2021; 2022: September 2022; 2023: January 2024 - Other Publications: 2021 Occasional Paper on COVID-19 support measures (Spanish only); 2023 1st Biennial Report on Climate Change Risks to the Financial System. *Source: Chapter 4, "The macroprudential policy framework has been significantly upgraded and enhanced," 1espea2024005-print-pdf.* --- ### Banco de España (BdE), CNMV, and DGSFP: mandates, practices, and coordination ### Banco de España (BdE) - Mission: achieve price stability and financial stability to support stable economic growth. - Core functions include national competent authority for banking supervision under the SSM, promote smooth functioning of payment systems, and Emergency Liquidity Assistance (ELA) operations. - Macroprudential remit: - Developed analytical framework to identify systemic risks. - Responsible for proposing and adopting macroprudential tools in the banking domain, following notification and consultation with AMCESFI, ECB and other European authorities as required. - Governance and internal processes: - Quarterly review by BdE’s Financial Stability Committee (FSC) chaired by the Governor; FSC makes recommendations to the Executive Commission (governing body for decisions). - BdE publishes twice-yearly Financial Stability Review (FSRev) and half-yearly Financial Stability Report (FSR); in other quarters a macroprudential note is prepared. - Note: "To date, the BdE has not applied any additional macroprudential instruments that are potentially available in the toolkit." ### Comisión Nacional del Mercado de Valores (CNMV) - Responsibilities: supervision of securities markets, prudential supervision of collective investment schemes including investment funds. - Monitoring and powers: - Monitors investment funds to identify those with higher liquidity risk; powers to set liquidity and leverage requirements, and measures to mitigate fire-sale risk under massive redemptions. - Decision-making: Chair can deploy macroprudential tools under delegated powers, typically discussed at the Executive Committee, after AMCESFI review and European notifications as required. - Example: temporary ban on short selling in March 2020. - Publications and monitoring cadence: - Weekly indicators of market stress; Financial Stability Notes (FSN) semi-annually since 2022 (previously quarterly); NBFI Monitor annually; Bulletin; Annual Report. ### Dirección General de Seguros y Fondos de Pensiones (DGSFP) - Responsibilities: supervision of insurance, reinsurance and pension funds; explicit macroprudential powers expanded in 2018. - Processes: - Regular quarterly systemic risk assessment based on EIOPA-recommended indicators; reviewed by internal Management Committee chaired by Director General. - DGSFP contributes to AMCESFI; deployment of tools is responsibility of Director General with AMCESFI consulted and EIOPA typically informed. - Publications: annual report, quarterly bulletin, regular statistics. - Note: "To date, DGSFP has not introduced any macroprudential measures covering the insurance sector," though it issued recommendations during COVID-19 on dividends, share repurchases and bonuses. ### AMCESFI coordination and assessment - AMCESFI provides oversight, opinions, warnings and a biennial climate risk report (first in September 2023). - Assessment findings: - Robust institutional framework; sectoral authorities retain responsibility for tools under AMCESFI oversight. - Areas for reinforcement include increasing Council meeting frequency to quarterly to reduce inaction bias and improve timeliness of policy decisions. *Source: IMF staff summary of institutional arrangements and recommendations as presented in the provided chapter.* --- ### Data sharing, systemic risk identification, and analytical tools ### Data sharing arrangements and limitations - Royal Decree requires public authorities to cooperate with AMCESFI and provide relevant data. - CNMV receives quarterly information on every foreign CIS marketed in Spain; supplements regulatory information with commercial data vendors. - Findings on data gaps: - Comprehensive information on a large proportion of funds, especially open ended funds domiciled in Spain. - Information on EU open ended funds marketed in Spain via UCITS or AIF passport is less comprehensive; EU CIS marketed in Spain represent almost 40 percent of marketed assets and lack granular portfolio detail. - Gaps in disaggregated information on portfolios of foreign investment funds and on activation of some liquidity-stress policy tools (notice periods, anti-dilution tools). - Information on income of new mortgage borrowers was added to Spanish credit register in 2023; BdE uses postal-code income proxies and is exploring integrating tax records. - Shortfalls in data on climate change, fintech, and cyber security. ### Systemic risk identification methods and publications - Authorities use charts, heat maps, risk dashboards, systemic risk indicators, tailored models and stress tests. - Examples of indicators and frequency: - BdE Systemic Risk Indicator (SRI): Frequency Weekly; components weights Money market (0.25), Public debt (0.25), Equity (0.25), Financial Intermediaries (0.25) + Correlation; Publication FSR. - CNMV Financial Markets Stress Indicator (FMSI): Frequency Weekly; components weights Money market (0.15), Public debt (0.2), Equity (0.2), Financial Intermediaries (0.3), Forex market (0.05), Derivatives (0.1) + Correlation; Publication CNMV website + FSN. - SRISK (BdE): Frequency Monthly; objective measures banking sector stress. - Stress testing: - BdE’s Forward-Looking Exercise on Spanish Banks (FLESB) covers a wider sample than EBA, allows dynamic balance sheet adjustments and more severe stress in some dimensions; results published in FSR each autumn. - CNMV half-yearly stress tests of investment funds’ capacity to meet extraordinary redemptions; key results in annual NBFI Monitor. - DGSFP regular insurance stress tests drawing on EIOPA framework. - AMCESFI used stress tests extensively in its first biennial climate risks report. ### Communication and coordination recommendations - BdE FSR and CNMV FSN provide clear summaries; AMCESFI Annual Report lacks a clear system-wide summary and is not timely. - Recommendations: - Provide an overall system-wide assessment in AMCESFI Annual Report and high-level summaries of Council meetings. - Deepen cross-agency work on system-wide risk topics under AMCESFI (examples provided). ### Data and expertise recommendations - Priorities: improve individual borrower income data; cross-border exposures of investment funds; enhanced data for climate and technological risks; recruit specialist staff in big-data, cyber risk and climate risk analysis. *Source: Excerpt from IMF staff assessment in the provided chapter content.* --- ### Macroprudential toolkit, operational challenges, and NBFI measures ### Legal framework and tool taxonomy - Royal Decree 22/2018 amended sectoral frameworks; Royal Decree 102/2019 (March 2019) established AMCESFI and a wide set of policy measures (Article 15 summary): - Capital buffer requirements for credit institutions and investment firms. - Limits on sectoral concentration. - Conditions on granting of loans and other exposures. - Higher risk weights for real estate exposures (for institutions supervised by BdE). - Adoption of Article 458 CRR measures. - Suspension of redemption of shares or units in CIIs. - Measures to increase liquidity of CIIs. - Limits on leverage of CIIs. - Limits and conditions to prevent private sector over-indebtedness. - Prohibition or restrictions on short selling and similar transactions. - Limits on aggregate exposure of insurance/reinsurance undertakings and limits/conditions on transfer of insurance portfolios. - Any other measure included in sectoral laws and ruled macroprudential by AMCESFI Council. ### Banking-sector instruments, timelines and analysis - BdE uses a wide set of indicators: credit-to-GDP gap (adjusted), econometric models, macrofinancial indicators, real estate market indicators. - Structural indicators developed for SyRB assessment. - CCyB, systemic buffers and timing: - Banco Santander: O-SII buffer of 1.25 percent in 2024; G-SII buffer set at 1 percent (latest G-SIB list). - Legal/procedural timeline for CCyB activation: - Administrative approval process would take at least 14 weeks after internal BdE decision. - Transition period typically 6-12 months depending on instrument. - An initial BdE decision to change CCyB from 0 percent to 1 percent, or from 1 percent to 2 percent, could take 15 to 18 months before impacting capital requirements. - European consultation processes may run in parallel and extend the period; provisions exist to shorten in extreme circumstances. - Decisions to release buffers can be implemented with little or no delay; banks may nevertheless take action on announcement for capital planning. - Growth-at-risk analysis: - Capital measures show benefits on the left tail of GDP growth distribution with delay of between 6 and 12 quarters. - Borrower-based measures (BBM) have maximum impact on growth-at-risk after 4 quarters. - In downturns, benefits of loosening capital measures are more immediate; BBMs have limited loosening benefits. - Emphasis on timing and calibration; adverse effects of deploying CCyB in an expansion are far outweighed by benefits of reducing likelihood and impact of future crises. ### NBFI (investment funds, asset management, insurance) toolkit and gaps - Powers granted to CNMV and DGSFP; three broad areas: investment funds/asset management measures, instruments for other market activities, tools for insurance sector. - Investment fund tools focus on liquidity mismatch and excessive leverage: - Limiting risk build-up: liquidity management policies, stress test requirements, diversification rules, limits on unlisted securities, borrowing and derivatives. - Anti-dilution measures: redemption fees, swing pricing, switching valuation from “mid” to “bid” prices. - Slowing repayment: notice periods and extension in settlement periods. - Addressing illiquidity: side-pockets and partial redemption. - Extraordinary measures: suspension of redemptions and redemption in kind. - Legal framework, CNMV powers and monitoring gaps: - Many tools are implemented by managers under discretion without permissions (e.g., notice periods, swing pricing) and set out in prospectuses. - CNMV has three instruments for extraordinary conditions: suspension of redemptions; requiring additional investments in highly liquid assets; imposing notice periods. - Notification/authorization requirements: - Some tools (side-pocket, extraordinary notice period, suspension) require notification and authorization by CNMV; others (swing pricing) may not require notification. - Based on prospectus information as of August 2023: 85 percent of funds contemplate notice periods and 37 percent swing pricing. - Selected quantitative rules and thresholds: - Real estate funds can suspend redemptions for up to two years. - For UCITS and Quasi UCITS: exposure through derivatives limited to 100 NAV; borrowing limited to 10 percent to face redemptions. - Notice periods: up to 10 days if redemptions exceed €300.000. - CNMV can require a fund or group of funds to increase investments in highly liquid assets for reasons of financial stability on a temporary basis. - FMI and investment firms: - CNMV can introduce temporary bans on short selling; responsibilities for margins/haircuts oversight, recovery and resolution planning for critical market infrastructures; powers to mitigate excess leverage for investment firms. - DGSFP: - Powers include setting limits on aggregate exposures of insurance/reinsurance companies, establishing limits/conditions on transfer of insurance portfolios; amendments to Solvency II will grant other tools (e.g., temporarily suspend redemption rights of life insurance policy holders). - Implementation challenges and recommendations: - Improve borrower income data granularity for calibration of BBMs (LTI, DSTI); 2023 credit register addition is welcome but incomplete. - Streamline administrative procedures to shorten minimum 14-week consultation and approval lag; combined with 6–12 month transition periods, deployment timing is lengthy. - Review and strengthen notification (and in some cases permissioning) requirements to CNMV on firms’ activation and use of discretionary tools. - Address market-behavior collective action problems: firm incentives may not align with macroprudential objectives under stress; market-wide regulatory intervention may be warranted to overcome market failures. - CNMV extraordinary powers are tools of last resort and have not been used to date. ### Policy stance - Current neutral macroprudential stance in Spain appears appropriate; FSAP did not detect substantial cyclical or sectoral imbalance that would warrant immediate deployment of additional instruments. *Source: IMF staff summary of CNMV, DGSFP, AMCESFI, BdE and related FSAP material as presented in the provided content.* --- ### Lending-standards guardrail assessment and positive neutral CCyB recommendation ### Guardrail on lending standards: assessment and staff judgement - The FSAP assessed, but did not recommend at present, implementation of a ‘guardrail’ (limits such as maximum LTV or DSTI on new loans) to protect against major deterioration in lending standards. - Principal arguments against introducing a guardrail now: - Risk that setting limits weaker than current bank standards could signal regulatory acquiescence to deterioration. - No current cyclical or sectoral need. - Regulation entails market distortions and distributional implications require assessment. - Staff judgement: cons outweighed pros at present; authorities encouraged to keep option in mind and continue analysis of how best to formulate a guardrail. - BdE technical note: reliance on LTV alone would be misplaced; a richer set of lending standards is preferable. ### Recommendation to introduce a positive neutral CCyB - Recommendation: - Introduce a positive neutral level of the CCyB in Spain. - Rationale and benefits: - A positive neutral CCyB provides additional policy space and resilience, supplements banks’ voluntary buffers, supports continued credit provision and helps avoid costly deleveraging cycles. - It can be released in the event of a major adverse exogenous shock, particularly one not preceded by a lending boom. - Endorsements and international context: - Basel Committee sees benefits in countries setting a positive cycle-neutral CCyB voluntarily; approach supported by ECB and ESRB. - Countries inside the Banking Union that have introduced the approach include Cyprus, Ireland, and the Netherlands; outside include Australia, Canada, Czech Republic, Sweden, and the United Kingdom. - Rates vary but typically range between 1-2 percentage points; Canada set a domestic stability buffer akin to a positive neutral CCyB of 3.5% (with an upper limit of 4%). - Historical lesson: - Spain’s CCyB was 0 percent in advance of the pandemic, leaving no policy space to lower capital requirements when the shock arrived. - BdE next steps: - BdE undertaking detailed technical analysis; key considerations include asymmetry of costs and benefits, gradual activation to ease capital planning, cyclical/structural characteristics, desired stabilization capacity, and degree of domestic and cross-border interconnectedness. - Staff welcome early communication of technical analysis and conclusions to lower uncertainty and facilitate bank capital planning. *Source: 1espea2024005-print-pdf (selected excerpts).* *Source: Excerpts from Spain: IMF Financial Sector Assessment Program Technical Note (provided PDF chapter content).* ### EXECUTIVE SUMMARY __________________________________________________________________________ 5 ### EXECUTIVE SUMMARY ### Overview of recent reforms and current assessment - The macroprudential policy framework in Spain has been significantly reinforced in recent years, including establishment of a new macroprudential authority, Macroprudential Authority Financial Stability Council (AMCESFI). - Techniques and approaches for systemic risk identification have been enhanced, and gaps in the macroprudential policy toolkit identified by the previous FSAP have been closed, although the new tools have not been applied to date given the assessment of risks. - The framework incorporates many areas of strength by international standards, such as the techniques for systemic risk identification and the breadth of permissible macroprudential tools. ### AMCESFI: role, strengths, and areas for reinforcement - Establishment and mandate: - AMCESFI was established in March 2019 and brings together high-level representatives of MINECO, BdE, CNMV, and DGSFP. - Responsibilities: systemic risk oversight, ensuring effective policy coordination, powers to issue warnings and recommendations on financial stability issues, and to issue opinions on policy measures proposed by sectoral member authorities (BdE, CNMV, DGSFP), with sectoral authorities retaining final responsibility for policy proposal, adoption and implementation. - Strengths: - Strengthened high-level coordination and bolstered institutional framework supporting financial stability. - Identified scope for reinforcement: - Relative to peer bodies, the AMCESFI Council meets less frequently and no summary minutes of meetings are published. - The AMCESFI Annual Report is typically published with a time lag of nine to ten months, rendering it somewhat outdated. - Recommendations to strengthen role, credibility, transparency, and accountability: - Hold regular AMCESFI Council meetings at least quarterly rather than a minimum of half-yearly. - Publish summary minutes of Council meetings and timely Annual Reports. - Sharpen communication of Council judgements on major systemic risks and policy actions, building on sectoral authorities’ financial stability publications and AMCESFI cross-sectoral analysis. - Actively consider adding external macroprudential policy experts (e.g., well-respected academics); adding independent members can strengthen internal challenge and decision quality. - Review AMCESFI’s potential broader high-level coordination role on specific financial stability topics (example: climate change risks; first biennial report published in September 2023). - Complete the first internal performance review of AMCESFI as mandated in the Royal Decree establishing the macroprudential authority. ### Systemic risk identification and data priorities - Upgrades and methods: - Frameworks for systemic risk identification have been upgraded; systemic risk identification in Spain uses advanced methods and approaches. - Data and cross-agency work priorities: - Continue investment in improving data and information on individual borrower income and cross-border exposures of investment funds (as part of European and global initiatives). - Intensify work within the EU and globally to facilitate availability of granular information on domestic fund investments in other non-domestic funds. - Deepen cross-agency work under the AMCESFI umbrella on system-wide risk topics—examples: system-wide liquidity risk from household deposits switching to insurance products and investment funds; business model risks from bancassurance; cyber risks. ### Macroprudential toolkit: scope, limitations, and NBFI focus - Scope and integration: - The policy toolkit available to Spanish authorities is broad by international standards: comprehensive tools for banking sector risks, and an extensive set of tools to address systemic risks from NBFI. - Limitations and operational issues: - Some tool activations are in the hands of individual participants (e.g., fund managers) whose incentives may not align fully with system-wide objectives. - Authorities’ work on understanding and mitigating system-wide risks from episodes of rapidly evolving market stress is hampered by a shortage of information. - Recommendations to strengthen toolkit effectiveness: - Strengthen reporting requirements so that the CNMV is immediately notified of the activation of policy tools in the hands of fund managers and investment firms. - Enhance capability to monitor fund and firm behavior under stressed conditions to facilitate judgement on whether authority-held tools should be activated. - Continue active participation in Financial Stability Board and global standard-setting bodies to develop and reinforce the framework and toolkit for addressing system-wide NBFI risks, and implement main conclusions and recommendations when available. - Increase CNMV staff complement with technical skills on big data analysis to support enhanced systemic risk identification and analysis of market trends and risks. - Continue addressing data and information gaps to enhance financial stability analysis and the development and application of macroprudential instruments. ### Current macroprudential stance and capital buffer recommendation - Current stance: - The authorities have adopted a neutral cyclical macroprudential policy stance for the banking sector in recent years. - Apart from higher capital buffers for systemically important credit institutions, no other instruments have been deployed in the banking sector. - The countercyclical capital buffer (CCyB) rate has remained at 0 percent since inception in 2016, and no sectoral or borrower-based measures have been introduced. - The FSAP supports the current neutral policy stance; no major cyclical or structural imbalance warranting deployment of a policy tool was detected. - Recommendation: - Introduce a positive neutral countercyclical capital buffer (CCyB) for credit institutions in Spain to provide additional resilience and policy space to ensure banks can continue lending to the real economy in the event of major adverse structural shocks. - As of early 2024, the BdE is actively considering the case for introducing a positive neutral CCyB; the FSAP supports adoption of a positive neutral capital buffer. - Review and, where feasible, simplify and streamline administrative and consultation procedures that BdE must follow before final decisions to activate macroprudential tools, to shorten lengthy implementation lags. ### Consolidated main recommendations (as presented in Table 1) - Increase the frequency of AMCESFI Council meetings to at least quarterly. [see paragraph ¶31] — AMCESFI, MINECO — I - Raise the transparency of AMCESFI by publishing minutes / summaries of Council meetings and timely Annual Reports. [¶33] — AMCESFI, MINECO — I - Strengthen the communication of AMCESFI’s assessment of the major systemic risks and vulnerabilities, building on the expertise of the member authorities and detailed analysis of interconnections, interrelationships and spillover risks across the domestic financial system, as well as across borders. [¶33] — AMCESFI — ST - Review the case for appointing 2 or 3 high caliber external macroprudential policy experts to the AMCESFI Council to strengthen the diversity of perspectives and expertise. [¶32] — AMCESFI, MINECO — ST - Consider the case for AMCESFI to take on a broader high-level coordination role on financial stability topics and cross cutting risk issues (such as cyber risk and crisis management planning) as warranted, inviting other key public sector stakeholders to participate on relevant topics as appropriate. [¶34] — AMCESFI — ST - Complete the first internal performance review of AMCESFI as mandated in the Royal Decree establishing the macroprudential authority. [¶35] — MINECO — I - Continue to address data and information gaps to enhance financial stability analysis and the development and application of macroprudential instruments. [¶43] — MINECO, BdE, CNMV, DGSFP, AMCESFI — ST - Increase the complement of CNMV staff with technical skills on big data analysis to support enhanced systemic risk identification and analysis of market trends and risks. [¶44] — CNMV — ST - Introduce a positive neutral countercyclical capital buffer for the banking sector. [¶71] — BdE, AMCESFI — ST - Review possible options for simplifying and streamlining the domestic consultation and administrative processes entailed in the deployment of certain key macroprudential policy instruments, in order to shorten the lengthy implementation lag. [¶64] — AMCESFI — ST - Review and strengthen notification (and in some cases, permissioning) requirements on funds, and, where warranted, other NBFI providers, to inform the supervisor of the activation of all policy instruments and tools. [¶67] — CNMV, AMCESFI — I - Continue to engage actively in European and global fora on the further deepening and development of the framework and policy toolkit for addressing system-wide risks from NBFI and implement the main conclusions and recommendations when available. [¶65] — MINECO, BdE, CNMV, DGSFP, AMCESFI — ST *Source: EXECUTIVE SUMMARY, Spain: IMF Financial Sector Assessment Program Technical Note (selected excerpts).* ### 4. The macroprudential policy framework has been significantly upgraded and enhanced ### 4. The macroprudential policy framework has been significantly upgraded and enhanced ### Overview of recent institutional upgrades - In 2019, the government established Autoridad Macroprudencial Consejo de Estabilidad Financiera—the AMCESFI. - Establishment of AMCESFI addressed a key recommendation from the 2017 FSAP and fulfilled the outstanding 2011 recommendation from the ESRB requesting Member States to designate an authority entrusted with the conduct of financial system-wide macroprudential policy. - Strengthening of macroprudential powers and additions to the set of policy instruments were introduced in parallel. ### Mandate, powers, and coordination role of AMCESFI - AMCESFI provides high level oversight of systemic risk and coordination of the policy response across the Spanish financial system. - Council composition brings together high-ranking officials from MINECO and the three financial supervisory and regulatory authorities (BdE, CNMV, and DGSFP). - Powers and functions: - Issue warnings and recommendations on financial stability issues. - Issue opinions on policy measures proposed by sectoral authorities (BdE, CNMV and DGSFP). - Monitor and analyze factors that might affect systemic risk and prepare opinions, warnings and recommendations. - Tasked with “ensuring the financial system makes a sustainable contribution to economic growth.” - Sectoral authorities retain powers for proposal, adoption, and implementation of macroprudential measures; the Royal Decree emphasizes that national authorities “keep the supervisory powers they have been exercising to date” while AMCESFI strengthens these functions through analysis, opinions, warnings, and recommendations. - MINECO has legislative initiative powers regarding the financial system, institutional architecture, and development of macroprudential tools. ### Integration with European macroprudential architecture - The Spanish framework is integrated into the European System of Financial Supervision and the Banking Union’s Single Supervisory Mechanism (SSM). - ESRB responsibilities: - Macroprudential oversight of the EU financial system. - Issues warnings and recommendations and provides assessments and opinions on national measures. - Banking supervision: - BdE is a member of the SSM; ECB directly supervises the 10 Spanish banking groups designated as Significant Institutions (SI), working closely with BdE as the Spanish NCA. - Less Significant Institutions (LSIs) are directly supervised by BdE; ECB oversees the functioning of the euro area banking system. - National authorities assigned powers under the Capital Requirements Regulation (CRR) and Directives (CRD); Article 458 of the CRR allows national application of stricter requirements in certain circumstances. - ECB can implement more stringent ‘top up’ measures than those recommended by national authorities for specified tools. - Securities and insurance: - CNMV notifies ESMA of proposed macroprudential measures for securities markets and investment funds, but retains ultimate implementation responsibility. - DGSFP would notify EIOPA of proposed measures, but retains final authority. - National authorities notify the ESRB of planned macroprudential measures in advance; the ESRB responds with an opinion. ### Governance, meeting cadence, and support arrangements - AMCESFI is a collegiate body led by a Council chaired by the Minister of Economy, Trade and Enterprise; Governor of the BdE is Vice Chair. - Supported by a Financial Stability Technical Committee (FSTC), chaired by the Deputy Governor of the BdE, plus subcommittees and working groups. - Meeting requirements: - Council must meet at least once every six months; FSTC meets at least quarterly. - All Council members (or their senior nominated alternate) must attend physically or virtually for quorum. - FSTC prepares and studies matters for the Council, reviews the financial stability landscape, submits proposed opinions/warnings/recommendations, and monitors international macroprudential discussions. - Support and resourcing: - No dedicated Secretariat or staff; support provided by member authorities’ staff charged to their respective budgets. - Secretariat for the Council provided by MINECO; Secretariat for FSTC provided by BdE. - Working groups and drafting teams established flexibly as needed (e.g., interconnectedness analysis, crypto assets, Annual Report drafting). - The Royal Decree specifies AMCESFI measures “shall not involve an increase in remuneration, resources or other staff costs.” ### Accountability and transparency - Accountability mechanisms: - Annual Report and a Parliamentary hearing; Annual Report typically published in September or October of the subsequent year, followed by the chair attending a Parliamentary Committee on Economic Affairs hearing. - The Annual Report for 2022 was published in January 2024 (publication was delayed). - Transparency: - Dedicated website with reports and membership/mandate details. - AMCESFI does not publish minutes or summaries of Council or FSTC meetings. ### Core areas of AMCESFI activity - Systemic risk analysis: - Review risks to financial stability, approaches to address them, and prepare public warnings and recommendations under a comply-or-explain procedure. - Reviewing proposed macroprudential measures: - Sectoral authorities must notify AMCESFI in advance of proposed measures; AMCESFI prepares an opinion or recommendation prior to the final decision. - Other tasks: - Assess potential new or emerging sources of systemic risks (e.g., climate change risks, crypto assets). - Coordinate biennial reports on risks of climate change to the financial system (first report published in September 2023). - Published a report in 2021 assessing the impact of national COVID-19 support measures on financial stability. ### Application of the framework in practice and notable outcomes - Notifications and opinions: - Each year AMCESFI is notified of a minimum of six measures by the BdE. - These measures include: - Countercyclical capital buffer (CCyB) for the banking sector (reviewed quarterly). - Additional capital buffer rates for global systemically important institutions (G-SII) and other systemically important institutions (O-SII) (reviewed and set annually). - The CCyB rate has been held at zero percent in Spain since its introduction in 2016; AMCESFI confirmed support at its inaugural meeting in April 2019 and has not issued an opinion to date in the absence of a proposed change. - AMCESFI published formal opinions in 2021 and 2023 on proposed changes by the BdE to O-SII buffer rates, supporting the proposals. - BdE has not proposed any other macroprudential measures since AMCESFI’s inception. - CNMV notified AMCESFI in 2020 of a temporary ban on short selling during pandemic market turbulence; measure required immediate implementation, so AMCESFI did not publish a formal opinion. - Warnings and recommendations: - AMCESFI has not issued any formal warnings or recommendations to date based on systemic risk assessments. ### Activity statistics and key figures - Financial structure highlights (Share of financial system in June 2023 (%) and Share of GDP in June 2023 (%)): - Credit Institutions: Share of financial system 74.8; Share of GDP 285.3 - Securities Markets (including Investment Funds): Share of financial system 6.9; Share of GDP 26.3 - Insurance Companies and Pension Funds: Share of financial system 8.0; Share of GDP 30.7 - Other Institutions: Share of financial system 10.3; Share of GDP 39.1 - Overall: System-wide Share of financial system 100; Share of GDP 381.4 - Note: “Assets of deposit taking institutions (banks) in Spain are some two-thirds of total financial system assets.” - AMCESFI activities (Table 4: 2019–2023): - Number of Meetings: - AMCESFI Council: 2019: 2; 2020: 5; 2021: 3; 2022: 2; 2023: 3 - FSTC: 2019: 3; 2020: 12; 2021: 4; 2022: 9; 2023: 4 - Combined Total: 2019: 5; 2020: 17; 2021: 7; 2022: 11; 2023: 7 - Domestic Measures notified to AMCESFI: 2019: 6; 2020: 7; 2021: 6; 2022: 6; 2023: 6 - Opinions Published: 2019: 0; 2020: 0; 2021: 1; 2022: 0; 2023: 1 - Warnings and Recommendations: 2019: 0; 2020: 0; 2021: 0; 2022: 0; 2023: 0 - Annual Report Published: 2019: —; 2020: July 2020; 2021: October 2021; 2022: September 2022; 2023: January 2024 - Other Publications: - 2021: Occasional Paper on public support measures to mitigate risks from COVID-19 (available in Spanish only) - 2023: 1st Biennial Report on Climate Change Risks to the Financial System *Source: Chapter 4, "The macroprudential policy framework has been significantly upgraded and enhanced," 1espea2024005-print-pdf.* ### 17. The mission of the BdE is to achieve price stability and financial stability in order to ### 17. The mission of the BdE is to achieve price stability and financial stability in order to ### Banco de España (BdE): mission and macroprudential remit - Mission: achieve price stability and financial stability in order to support stable economic growth. - Core functions as a member of the European System of Central Banks (ESCB): - National competent authority for banking supervision under the SSM. - Promote the smooth functioning of payment systems, and, without prejudice to the functions of the ECB, of national payment systems. - Emergency liquidity assistance (ELA) operations. - Macroprudential responsibilities: - Developed an analytical framework to identify potential systemic risks. - Responsible for proposing and adopting macroprudential tools in the banking domain, following notification and consultation with AMCESFI, the ECB and other European authorities as required. ### BdE governance and internal processes for macroprudential policy - Regular quarterly process to review systemic risk and the case for macroprudential action: - BdE’s internal Financial Stability Committee (FSC), chaired by the Governor, undertakes an assessment of stability risks each quarter and makes recommendations to the Executive Commission. - The Executive Commission is the relevant governing body of the central bank for decisions. - Flexibility: additional meetings and discussions can be held at any stage, e.g., under conditions of financial stress or crises. ### Analytical outputs, publications, and tools - Frequency and documents: - Twice a year the quarterly assessment is based on the draft of the BdE half-yearly Financial Stability Report (FSR), overseen by the FSC and approved by the Executive Commission and Governing Council for publication. - In the remaining quarters a macroprudential note is prepared to facilitate the FSC review. - BdE publishes up to date monitoring information and explanatory analysis on major instruments for the banking sector on its website, together with decisions on the CCyB and on the G-SII and O-SII buffers. - BdE publishes a twice-yearly Financial Stability Review (FSRev) focused on macroprudential policy, regulation and supervision, plus working and occasional papers on financial stability topics. - Note: "To date, the BdE has not applied any additional macroprudential instruments that are potentially available in the toolkit." ### Comisión Nacional del Mercado de Valores (CNMV): mandates and practices - Responsibilities: - Supervision of Spanish securities markets and participants, promoting transparency, market integrity and investor protection. - Prudential supervision of companies providing collective investment schemes, including investment funds. - Monitoring and powers: - Supervision Department closely monitors investment funds to identify those with higher liquidity risk, especially during stress periods. - Powers to assess and mitigate systemic risks from markets, including powers to set liquidity and leverage requirements for investment funds to mitigate risks of fire-sales under massive redemption pressures. - Monitoring cadence and publications: - Staff prepare regular reports on market conditions and publish information (e.g., weekly indicators of market stress). - Indicators and reports available at weekly (and if necessary under stress, daily), monthly, and quarterly frequencies; ad hoc reports can be produced at any time. - Publishes Financial Stability Notes (FSN) semi-annually (previously quarterly from 2017 to 2021, switching to half yearly in 2022), an annual monitor on trends and risks in NBFI, a regular Bulletin, an Annual Report, working papers and other data. - Decision-making: - Decisions on deployment of macroprudential tools in response to perceived systemic risks are taken by the Chair under delegated powers (typically discussed at the Executive Committee), following review of recommendations by AMCESFI and notification to relevant European authorities as required. - Example: a temporary ban on short selling introduced in March 2020 in response to market turbulence at the onset of the COVID-19 pandemic. ### Dirección General de Seguros y Fondos de Pensiones (DGSFP): mandates and practices - Responsibilities: - Supervision of insurance, reinsurance and pension funds. - Explicit macroprudential responsibilities and powers to identify and address systemic risks in insurance and pension funds; powers expanded in 2018. - Processes: - Staff undertake a regular quarterly systemic risk assessment based on a framework of indicators recommended by EIOPA. - Assessment reviewed by the internal Management Committee chaired by the Director General of Insurance and Pension Funds. - DGSFP contributes to AMCESFI discussions and decisions on macroprudential and supervisory responses; deployment of macroprudential tools is the responsibility of the Director General, with AMCESFI consulted in advance and EIOPA typically informed. - Publications: - Publishes an annual report covering main developments, issues and risks affecting the insurance and pension sectors, a quarterly bulletin, regular statistical information and other papers. - Note: "To date, DGSFP has not introduced any macroprudential measures covering the insurance sector," though it issued recommendations during the COVID-19 crisis to exercise extreme caution regarding dividend payments, share repurchases and bonus payments to support own funds. ### AMCESFI, coordination and governance - AMCESFI provides high level oversight of emerging risks to the Spanish financial system and facilitates adoption of policies across sectors. - Roles: - Provides opinions, warnings and recommendations and intensified focus on system-wide risks, interconnections and contagion channels. - Tasked with preparing a biennial report on climate change risks to the financial system (first report published in September 2023). - Operation to date: - Coordination has intensified among Spanish financial authorities; Council and Financial Stability Technical Committee (FSTC) met frequently in 2020 (Council and FSTC held 17 meetings between them). - The Council has not yet issued warnings or recommendations. ### Assessment findings on institutional framework - Strengths: - Spain has a robust institutional framework following establishment of AMCESFI. - Powers and responsibilities are clear: sectoral authorities retain responsibility for proposing and implementing macroprudential tools, under AMCESFI oversight which can provide opinions, warnings and recommendations. - Initial operation is encouraging with intensified coordination and greater attention to system-wide issues. - Areas for reinforcement: - Consider increasing AMCESFI Council meeting frequency from at least twice a year to quarterly: - Risk: half-yearly Council meetings could delay timely assessment of emerging risks and lead to delayed policy decisions; may incentivize holding policy proposals to coincide with Council meetings. - International practice in major economies favors quarterly meetings of macroprudential councils or authorities. - Mitigating factors in Spain: FSTC meets at least once a quarter and may request special Council meetings; written procedures and extraordinary meetings can be used; during 2020 the Council and FSTC held 17 meetings between them. - Macroprudential policies face a strong inaction bias because benefits accrue in the future while costs are borne immediately by financial institutions and the private sector; quarterly Council meetings would help guard against such bias. ### Comparative observations (high-level points from the international comparison) - International comparison highlights differences in structures, chairs, membership, hard powers over macroprudential instruments, publication practices and meeting frequencies across Spain, France, Germany, United Kingdom and United States. - Specific comparative points noted: - AMCESFI Chair: Minister of Economy, Trade and Enterprise; membership includes Ministry, Central Bank, Financial Market Authority, Insurance and Pensions Funds Supervisor. - Hard powers over macroprudential instruments in Spain remain with sectoral financial authorities (BdE, CNMV and DGSFP). - AMCESFI Council minimum meetings: At least two times a year; FSTC meets at least quarterly. - Publication of meeting minutes or summaries: Spain—No; other jurisdictions vary (e.g., France—Yes; United Kingdom—Yes). - Annual report timing examples: Spain—September-October covering previous calendar year; United Kingdom—July and December covering previous six-month period. *Source: IMF staff summary of institutional arrangements and recommendations as presented in the provided chapter.* ### 32. AMCESFI could benefit from the inclusion of independent external members. AMCESFI ### 32. AMCESFI could benefit from the inclusion of independent external members. AMCESFI ### Membership, composition, and potential conflicts - AMCESFI has strengthened communication and coordination between the financial regulatory authorities in Spain. - Cross-memberships cited: - Secretary General for the Treasury and International Finance is a member of the Board of the CNMV and Governing Council of the BdE. - Deputy Governor of the BdE is a member of the CNMV Board. - Vice Chair of the CNMV is a member of the BdE Governing Council. - Concern noted: the presence of the Secretary for the Treasury on the Governing Council of the BdE creates a potential for political interference on supervisory issues and jeopardizes supervisory independence; “some adjustments to address this issue are warranted.” - Risk from very close working relationships: may foster a uniform approach that misses alternative perspectives and views. - International practice: some countries (France and the United Kingdom) have appointed independent experts to their macroprudential committees. - Recommendation: - Appointment of external experts (for example, highly respected academics) to the AMCESFI Council could broaden discussions and strengthen decision making while preserving strong coordination and cooperation across regulatory authorities. ### Transparency, communication, and accountability - Transparency on AMCESFI discussions is relatively low by international standards. - From establishment in March 2019 to the end of 2023, the Council published only 8 documents. - No minutes, summaries or press releases of meetings are currently published. - Annual Report observations: - The Annual Report is the flagship AMCESFI transparency publication and is presented to Parliament by the Chair to provide accountability. - The Annual Report “is not particularly timely” and “does not contain a strong summary message of the AMCESFI Council assessment of major systemic risks and vulnerabilities.” - Annual Report timing examples: - The Annual Report for 2022 was delayed exceptionally until January 2024. - The Reports for 2020 and 2021 were not published until September and October of the subsequent year. - By the normal date of publication of the AMCESFI Annual Report: - the BdE has published the spring FSR for the subsequent year and is about to publish the autumn FSR, - the CNMV has published the FSN covering the first half of the subsequent year. - This timing “weakens the importance and credibility of the AMCESFI report.” - Recommendations to raise transparency and accountability: - Publish minutes or summaries of each Council meeting. - Improve timeliness of publication and depth of content of the Annual Report to raise visibility and prominence of AMCESFI discussions. ### Broadening AMCESFI’s mandate and coordination role - AMCESFI’s goal: “to contribute to the stability of the financial system as a whole, by identifying, preventing and mitigating systemic risk.” - AMCESFI has monitored and reviewed emerging risks such as climate risks and crypto assets. - Potential to broaden role: - Consider facilitating coordination across financial authorities on issues such as cyber risk and crisis management planning (including the possibility of adding the executive resolution authority FROB to membership and discussions on crisis management). - Alternative approaches noted: three sectoral authorities published a joint statement on crypto asset risks in March 2022; sectoral authorities are working together on implementing the TIBER approach to testing cyber security—both initiatives taken forward outside the AMCESFI framework. - AMCESFI could use flexibility to invite other public sector agencies to participate in discussions on particular topics as warranted. ### Internal performance review and statutory requirements - Royal Decree 102/2019 required MINECO to prepare a performance report every three years, with the first report to be undertaken in 2022. - The first three-year performance report is overdue. - Recommendation: - Complete and publish the first performance report in 2024 to facilitate potential improvements to the framework. ### Systemic risk identification and monitoring (overview and tools) - Each of the three sectoral regulatory authorities has well-established frameworks for monitoring risks to financial stability; high-level monitoring typically quarterly, supplemented during stress. - Periodic publications that provide transparency: half-yearly BdE FSR, CNMV FSN, annual report by DGSFP. - FSTC and AMCESFI interactions: - Each quarter, or more frequently if warranted, the FSTC undertakes a holistic review of risks to the Spanish financial system and reports results to the AMCESFI Council, which “customarily assesses systemic risks as a standing element at each meeting it holds.” - Authorities use a broad range of analytical techniques and tools: - Charts, heat maps, and risk dashboards: - Use historical distributions, percentiles, or selected thresholds with green, yellow, amber, and red scales. - Multiple indicators aggregated using weighted averages. - Example: BdE heat map aggregates information from over 100 separate indicators, weights based on capacity to anticipate crises (Spanish evidence over 45 years) and correlation adjustments. - Systemic risk indicators: - BdE Systemic Risk Indicator (SRI) and CNMV Financial Markets Stress Indicator (FMSI) follow a common approach and have been tailored to Spanish conditions. - BdE also uses SRISK for banking system assessment. - Table of features (selected): - SRI: Authority BdE; Sector Financial Markets; Frequency Weekly; Components and weights include Money market (0.25), Public debt (0.25), Equity (0.25), Financial Intermediaries (0.25) + Correlation; Publication FSR. - FMSI: Authority CNMV; Sector Financial Markets; Frequency Weekly; Components and weights include Money market (0.15), Public debt (0.2), Equity (0.2), Financial Intermediaries (0.3), Forex market (0.05), Derivatives (0.1) + Correlation; Publication CNMV website + FSN. - SRISK: Authority BdE; Sector Banking; Frequency Monthly; Objective measures banking sector stress. - Stress tests: - Sectoral agencies apply stress tests extending EU frameworks (EBA, ESMA, EIOPA). - BdE’s Forward-Looking Exercise on Spanish Banks (FLESB) applied to a wider sample than the EBA, accounts for dynamic balance sheet adjustments, more granular sectoral disaggregation, and in some dimensions incorporates more severe stress. Results published in the FSR each autumn. - CNMV undertakes half-yearly stress tests of investment funds’ capacity to meet extraordinary redemptions; key results published in the annual NBFI Monitor. - DGSFP carries out regular stress tests of insurance companies drawing on EIOPA framework adapted to Spanish markets. - AMCESFI used stress tests extensively in its first biennial report on climate risks. - Tailored risk models: - Areas covered: vulnerabilities in emerging markets, house price imbalances, sectoral credit cycles, structural risks in the banking sector, risks to bank funding liquidity, interconnectedness across the financial system. - Models used as early warning indicators and to improve understanding of downside risks to growth. - External models (e.g., credit-to-GDP gap) are typically adapted to Spanish characteristics. *Source: 1espea2024005-print-pdf - 32. AMCESFI could benefit from the inclusion of independent external members. AMCESFI* ### 38. Sharing of financial information in support of macroprudential oversight was ### Sharing of financial information in support of macroprudential oversight was strengthened at the launch of AMCESFI ### Data sharing arrangements and limitations - A specific provision in the Royal Decree requires the relevant public authorities in Spain to cooperate with AMCESFI and to provide the macroprudential authority with data and information relevant to its duties. - AMCESFI may also gather information relevant to its functions through the three sectoral authorities. - The CNMV receives quarterly information on the identification and amount of every foreign CIS marketed in Spain. - The CNMV supplements regulatory information with commercial data vendors, but corresponding action at the European and global levels could help to address data shortfalls. Findings on data gaps - Information on a large proportion of funds is comprehensive, in particular for open ended funds domiciled in Spain (as identified by the FSB). - Information on EU open ended funds marketed in Spain through UCITS or Alternative Investment Funds (AIF) passport is not as comprehensive. - There are gaps in disaggregated information on the portfolios of foreign investment funds: - Spanish funds' holdings in foreign collective investment schemes (CIS) have limited granularity. - EU CIS marketed in Spain represent almost 40 percent of marketed assets and lack granular portfolio detail. - Limitations in data on application of liquidity-stress policy tools: - CNMV has prospectus information on whether tools can be implemented and specific information when certain tools are activated in extraordinary circumstances (partial redemptions, side pockets and temporary suspensions of redemptions). - CNMV lacks accurate information on the activation of other tools used both in normal and stressed situations (notice periods and anti-dilution tools). - Progress on borrower income data: - Information on the income of new mortgage borrowers was added to the Spanish credit register in 2023; this will help fill gaps over time as mortgages mature. - BdE has been using data on income at the level of postal codes as a proxy while collecting granular information and is exploring integrating tax records. - Emerging risks data shortfalls: - Authorities note shortfalls in data on climate change, fintech, and cyber security. - Improved data from supervised financial institutions is “critical for greater accuracy in future climate change analyses.” ### Assessment of systemic risk identification and communication Key assessments - The overall framework for identifying sources of systemic risk in Spain is robust. - Effective processes exist within each sectoral authority: regular staff review under high-level oversight, with capacity for deeper monitoring and targeted “deep dives.” - System-wide monitoring is supported by quarterly (or more frequent) aggregation at the AMCESFI FSTC, with additional focus on interconnections and spillover risks. - Analytical approaches follow international good practices, including: - heat maps and risk dashboards; - systemic risk indicators; - tailored models; and - stress tests. - Authorities participate actively in European regulatory agency processes and review international experience. Communication and coordination - The BdE Financial Stability Report (FSR) provides a clear summary of principal risks and vulnerabilities; vulnerabilities and risks are measured using three colors (yellow – low, orange-medium, and red-high) with arrows showing changes since the previous FSR. - A visual PowerPoint synopsis of the FSR is readily available. - The CNMV Financial Stability Note (FSN) provides an effective summary, supplemented by weekly FMSI publication and principal elements on the CNMV website. - The AMCESFI Annual report: - lacks timeliness and - does not currently contain a clear overall summary assessment of system-wide risks drawing together views of Council members and authorities. - Recommendation: Provide an overall system-wide assessment in the AMCESFI Annual report and high-level summaries of Council meetings to strengthen communication and coordination of messaging to stakeholders. - Recommendation: Deepen cross-agency work on system-wide risk topics under AMCESFI (examples: system-wide liquidity risk from deposit shifts to insurance and investment funds; business model risks from bancassurance; cyber risks). ### Recommendations on data and expertise - Continued investment is needed to address data shortfalls and sustain risk identification frameworks as the financial system evolves. - Priorities for data improvements: - individual borrower income data (already improved with 2023 credit register addition); - cross-border exposures of investment funds, including facilitating granular information on domestic fund investments in non-domestic funds (global and European initiatives); - enhanced data collection, surveys and analysis for climate change and technological innovation risks, and for cyber risks. - The biennial cross-system report on climate change risks prepared by AMCESFI is a helpful catalyst, but developing and maintaining sufficient expertise remains challenging. - Given resource pressures, authorities may need to recruit additional specialist staff with expertise in: - analysis of large, real-time financial data sets (recruitment is proving difficult at the CNMV), - cyber risk analysis, and - climate risk analysis. ### Macroprudential framework and tools - The macroprudential toolkit in Spain was expanded alongside establishment of AMCESFI. - Royal Decree 22/2018 (December 2018) amended sectoral regulatory frameworks to convey additional powers to the three sectoral authorities to address systemic risks. - Royal Decree 102/2019 (establishing AMCESFI in March 2019) provided guidance and clarity on implementation of macroprudential tools and established a wide set of policy measures that can be adopted by the sectoral authorities. - BdE Circular 5/2021 published details of new tools, including indicators and approaches guiding deployment. - The legal framework includes a catch-all clause allowing other instruments if AMCESFI Council rules them macroprudential and they are included in sectoral law. Summary of high-level macroprudential tool types (Article 15 of Royal Decree 102/2019) - Capital buffer requirements for credit institutions and investment firms. - Limits on sectoral concentration. - Conditions on the granting of loans and other exposures. - Higher risk weights for real estate exposures (for institutions supervised by the BdE). - Adoption of measures stipulated in Article 458 of the CRR. - Suspension of the redemption of shares or units in collective investment institutions (CII). - Measures to increase the liquidity of CII. - Limits on the leverage of CII (in addition to other management restrictions). - Limits and conditions on the activity of supervised institutions to prevent private sector over-indebtedness. - Prohibition or restrictions on short selling and similar transactions. - Limits on aggregate exposure of insurance and reinsurance undertakings and limits/conditions on transfer of insurance portfolios and exposures. - Any other measure included in sectoral laws and ruled by the AMCESFI Council to be macroprudential. Banking-sector developments - The Spanish toolkit supplements the European baseline (CCyB, buffers for systemically important institutions, SyRB) with sectoral and borrower-based instruments (e.g., sectoral CCyB, sectoral concentration limits). - BdE Circular 5/2021 allows BdE to set limits and conditions on multiple ratios for households, and loans-to-assets and debt-to-assets for non-financial corporates; measures may be applied individually or in combination and calibrated by type of property, use, location, etc., with provisions for “speed limits” or exemptions. Italic: Source: Excerpt from IMF staff assessment in the provided chapter content. ### 0.25 to ### SPAIN: Macroprudential Policy Tools (excerpt) ### Macroprudential frameworks and indicators - The BdE draws on a wide range of indicators to guide decisions on the potential deployment of macroprudential tools, including: - The credit-to-GDP gap (as adjusted to the Spanish credit cycle). - Econometric models of credit imbalances. - Macrofinancial indicators: the output gap, GDP growth, and the current account balance. - Indicators reflecting conditions and potential imbalances in real estate markets. - Policy decisions on buffer rates for SIIs utilize international frameworks (Basel Committee on Banking Supervision for G-SIBs; European Banking Authority for O-SIIs; ECB for calibration of O-SII buffers). - Structural indicators have been developed for the Spanish banking sector to assess the possible case for applying a systemic risk buffer (SyRB). ### Countercyclical capital buffer (CCyB), systemic buffers, and timing of measures - Banco Santander is designated as both a G-SII and O-SII; the higher buffer rate applies: the O-SII buffer of 1.25 percent in 2024 (the G-SII buffer rate has been set at 1 percent as per the latest G-SIB list). - Legal and procedural timeline for activation: - After an internal BdE decision, the administrative approval process would take at least 14 weeks to be completed. - Banks (and borrowers) would typically be provided with a transition period to adapt ranging between 6-12 months depending on the instrument. - An initial decision by the BdE to change the CCyB from zero percent to one percent, or from one percent to two percent, could thus take 15 to 18 months before it impacts capital requirements. - European consultation processes may run in parallel and could extend the period; provisions exist for shortening in extreme circumstances. - Decisions to release buffers can be implemented with little or no delay; banks may nevertheless take some action on announcement to adjust capital planning. ### Analysis of instrument impact (growth-at-risk study) - Cross-country analysis finds differences between capital instruments and borrower-based measures (BBM): - Under financial expansions, benefits of capital measures on the left (or lower) tail of the GDP growth distribution are observed with some delay: between 6 and 12 quarters. - BBM have their maximum impact on growth-at-risk after 4 quarters. - In downturns, benefits of loosening capital measures are more immediate, while those of BBMs are limited. - The study emphasizes the importance of timing and calibration of instruments and notes that adverse effects of deploying the CCyB in an expansion are far outweighed by benefits from reducing likelihood and impact of future crises. ### Policy instruments for Non-Bank Financial Intermediation (NBFI) - Powers were granted to CNMV and DGSFP in Royal Decrees establishing macroprudential tools and AMCESFI. - Three broad areas of instruments: - Measures to address risks in investment funds and the asset management industry. - Instruments to mitigate systemic risks arising from other financial market activities. - Tools to contain risks from the insurance sector. ### Investment funds and asset management toolkit - Focus areas: liquidity mismatch and excessive leverage to lower risks of market runs and fire sales. - CNMV publications and a Technical Guide on the Management and Control of Liquidity in Collective Investment Schemes set out tools and requirements. - Categories of tools: - Limiting risk build-up: liquidity management policies, stress test requirements, portfolio diversification rules, limits on investments in unlisted securities, borrowing, and derivatives. - Anti-dilution measures to reduce first-mover advantage: redemption fees, swing pricing, switching valuation from “mid” to “bid” prices. - Slowing repayment to lower redemption pressures: notice periods and extension in settlement periods. - Addressing illiquidity: side-pockets and partial redemption. - Extraordinary measures: suspension of redemptions and redemption in kind for extreme stress. ### Legal framework, CNMV powers, and monitoring gaps - The legal framework enables active use of tools; many are implemented by managers under discretion without permissions (e.g., notice periods, swing pricing) and can be set out in prospectuses. - CNMV has three instruments for extraordinary conditions: suspension of redemptions; requiring additional investments in highly liquid assets; imposing notice periods. - Notification/authorization requirements: - Some tools (side-pocket, extraordinary notice period, suspension) require notification and authorization by CNMV. - Any CNMV application would be notified to AMCESFI for an opinion, to ESMA, and, after application, to the ESRB. - Gaps in information: - Some instruments may be applied by managers with no notification requirement, limiting CNMV's visibility on actual use. - Based on prospectus information as of August 2023: 85 percent of funds contemplate notice periods and 37 percent swing pricing. ### Selected quantitative rules and thresholds (as stated) - Real estate funds can suspend redemptions for up to two years. - For UCITS and Quasi UCITS: exposure through derivatives limited to 100 NAV; borrowing limited to 10 percent to face redemptions. - Notice periods: possibility to set notice periods under normal situations (up to 10 days if redemptions exceed €300.000). - Use of anti-dilution tools and swing pricing is set out in CNMV Technical Guide 1/2022. - The CNMV can require a fund or group of funds to increase investments in highly liquid assets for reasons of financial stability and on a temporary basis. *Source: Excerpt from IMF staff analysis of Spain’s macroprudential framework and tools (document content supplied).* ### 56. The CNMV also has access to additional macroprudential instruments to mitigate ### The CNMV also has access to additional macroprudential instruments to mitigate ### Powers and tools for Financial Market Infrastructures (FMI) and investment firms - The CNMV can introduce temporary bans on short selling. - The CNMV has responsibilities to ensure that margin and haircut models and practices applied by key infrastructure are robust under market stress. - The CNMV must ensure recovery and resolution plans for critical market infrastructure are reliable and effective. - The CNMV has powers and tools to mitigate risks from investment firms and their activities, for example to prevent excess leverage and contain moral hazard. - Note: The CNMV was granted additional powers effective in 2022 for the recovery and resolution of the systemically important central counterparty BME Clearing under the European Central Counterparty Recovery and Resolution Regulation CCPRRR (EU 2021/23). (footnote 126) ### Summary of macroprudential instruments for other financial market participants (high-level from Table 10) - Market Infrastructures - Restrictions on Short Selling - Intermediate Objective: Avoid illiquidity spirals and contagion effect - Available in Spanish Regulation: Yes - Need for Authorization by the CNMV: Yes - Possibility of adoption by the CNMV: Yes - Comments: Short Selling Regulation defines the framework for ESMA and national competent authorities to intervene in exceptional situations. - Margins and Haircuts - Intermediate Objective: Excessive leverage - Available in Spanish Regulation: Yes (Directly applicable from European Regulation) - Need for Authorization by the CNMV: No - Possibility of adoption by the CNMV: No - Comments: Current European legislation on derivatives and SFTs (EMIR and SFTR) does not provide for the macroprudential use of margins and haircuts by authorities. Decided by the infrastructures themselves. - Early Intervention and Recovery measures - Intermediate Objective: Moral hazard and strengthening the resilience of infrastructures - Available in Spanish Regulation: Yes - Need for Authorization by the CNMV: Yes - Possibility of adoption by the CNMV: Yes - Comments: The CNMV is the competent supervisory authority and chairs the supervisory college and can activate recovery and early intervention measures. - Resolution Measures - Intermediate Objective: Moral hazard and strengthening the resilience of infrastructures - Available in Spanish Regulation: Yes - Need for Authorization by the CNMV: Yes - Possibility of adoption by the CNMV: Yes - Comments: The CNMV is the CCP resolution authority and chairs the resolution college and activates resolution measures in the event of failing or likely to fail. - Investment Firms - Capital Requirements - Intermediate Objective: Excessive leverage - Available in Spanish Regulation: Yes (Regulatory requirement) - Resolution Measures - Intermediate Objective: Moral hazard and strengthening the resilience of entities - Available in Spanish Regulation: Yes - Need for Authorization by the CNMV: Partial - Possibility of adoption by the CNMV: Partial - Comments: The CNMV decides whether an entity is failing or likely to fail and the FROB executes the resolution measures. The resolution plan is approved by the CNMV. - Limits and conditions for activity to prevent excessive indebtedness - Intermediate Objective: Excessive leverage - Available in Spanish Regulation: Yes - Need for Authorization by the CNMV: Yes - Possibility of adoption by the CNMV: Yes - Comments: Measure applicable to all entities supervised by the CNMV. - Critical Benchmarks - Contingency Planning - Intermediate Objective: Manipulation and impossibility of calculation - Available in Spanish Regulation: Yes - Need for Authorization by the CNMV: No - Possibility of adoption by the CNMV: No - Comments: Benchmark Regulation (BMR) requires contingency plans from entities that use benchmarks (only supervised entities) and not from others, such as issuers. The authority does not authorize and does not have the capacity to require specific plans for the transition. - Administration and Mandatory Contribution - Intermediate Objective: Prevent the disappearance of the benchmark and maintain representativeness - Available in Spanish Regulation: Yes - Need for Authorization by the CNMV: Yes - Possibility of adoption by the CNMV: Partial - Comments: Decision is taken by the administrators competent authority (ESMA) after consultation with the College of Supervisors of which the CNMV is a member. - Source for table: CNMV. ### Past deployment and legal framework - The legal framework is in place to deploy these tools as needed. - In March 2020, given turbulence from the WHO declaration that COVID-19 was a global pandemic, the CNMV joined other European authorities in introducing a temporary ban on short selling in equity markets “to prevent the potential damage that this type of activity may cause in a highly volatile environment.” (footnote 127) - The measure remained in place until May 2020 and was lifted as market volatility declined. - Due to speed of implementation, AMCESFI was notified of the CNMV decision but did not express a formal Opinion. ESMA approved the approach taken. - CNMV is using new powers under the European CCP recovery and resolution regulation to support recovery and resolution planning. (footnote 128) ### Insurance and pension funds: DGSFP powers and market-stability mechanisms - The DGSFP was granted powers to apply additional macroprudential tools alongside the establishment of AMCESFI. - DGSFP powers include setting limits on aggregate exposures of insurance and reinsurance companies (such as concentration limits) and establishing limits and conditions on the transfer of insurance portfolios and exposures (for example, to address risks from private equity interest in insurance markets). - Other tools (e.g., temporarily suspend redemption rights of life insurance policy holders to protect liquidity in extraordinary circumstances) will be granted under amendments to Solvency II. (footnote 129) - The DGSFP supports mechanisms that provide stability: - Promotes predictability and certainty on payout of motor insurance claims. (footnote 130) - Works with the Biometric Commission to ensure biometric tables reflect mortality, survival, disability and morbidity rates. (footnote 131) - Chairs the Consorcio de Compensación de Seguros (CCS), which provides insurance, coinsurance and reinsurance services for natural catastrophes, agricultural crops, liquidation of insurance companies and policyholder protection. (footnote 132) - DGSFP has the legal framework to activate tools as needed; AMCESFI would be consulted in advance and typically EIOPA would be notified. ### Assessment: Policy toolkit breadth and gaps - The macroprudential instruments available to Spanish authorities are broad and extensive following legal changes in 2018 and 2019 and creation of AMCESFI. (footnote 133) - BdE’s 2021 Circular to credit institutions and CNMV’s 2022 Technical Guide on liquidity management in investment funds provided further steps to support application of tools. (footnotes 134, 135) - European initiatives on CCP recovery and resolution and amendments to Solvency II (yet to enter into force) strengthen available instruments. - For the banking system, a comprehensive range of tools is available, including borrower-based measures; amendments by the EBA operationalized flexible use of the systemic risk buffer (SyRB) for sectoral risks, creating a choice between the European SyRB or the national SCCyB if applied. - Preconditions for using tools are in place: legal and regulatory framework agreed and BdE has analyzed helpful indicators to guide decisions. - BdE publishes information on the transmission mechanism of capital-based instruments and borrower-based tools and key charts and data on monitoring variables. (footnote 136) ### Implementation challenges and recommendations - Data improvements - Important to improve granularity of data on household income to sharpen analysis and calibration of borrower-based tools such as Loan to Income (LTI) and Debt Service to Income (DSTI) limits. - Recent inclusion of partial data in the credit registry for new loans is welcome but not a short-term or complete solution. - Continued efforts to improve data by utilizing additional data from banks or tax authorities is a high priority. - Administrative procedures and timing - Streamline relatively complex administrative procedures for consultation to shorten implementation lag and raise effectiveness. - Authorities are encouraged to review scope to shorten a minimum of 14 weeks (and in some cases likely longer) for consultation, hearings and final approval of initial policy decisions. - Such delays, combined with subsequent 6-12 months transition period, complicate deployment of macroprudential tools, particularly countercyclical ones. - Non-bank financial intermediation (NBFI) - Macroprudential policy for NBFI remains under ongoing international review and development; the FSB is actively engaged in strengthening NBFI resilience. (footnote 137) - Spanish authorities are actively participating in European and global fora and should continue to do so. - Spain has an extensive set of policy instruments by European and international standards, but faces challenges ensuring effective deployment for some options (e.g., investment funds and insurance). - Some tools are mandatory by regulation (e.g., CIS liquidity risk management limits), while others depend on firm-level inclusion in guiding documents and discretion of fund/firm management (e.g., anti-dilution tools, swing pricing, bid/ask pricing, redemption gates). - For some tools prior authorization by regulator is required (e.g., side pocket); for others no permission or notification is required (e.g., swing pricing). - Review and strengthen notification (and in some cases permissioning) requirements to the CNMV on firms’ activation and use of discretionary tools is an important near-term priority. (footnotes 138–142) - Emerging risks - Continued work is needed to develop and implement tools to address systemic risk in areas such as cyber risk, crypto assets, and climate change; Spanish authorities are actively engaged in policy development in these areas. - Market behavior and coordination - Individual firm incentives may not align with macroprudential objectives under stress; actions by individual firms might signal weakness and trigger herding and a race to the exit. - Collective action problems and fear of stigmatization can delay activation of tools by firms; market-wide regulatory intervention may be warranted to overcome market failures in such events. - CNMV has extraordinary powers for direct intervention in extreme stress (suspend redemptions, require funds to increase liquid asset holdings, impose notice periods on redemptions), but these are viewed as tools of last resort and have never been used to date. (footnote 140) ### Policy stance - The current neutral stance of macroprudential policy in Spain appears appropriate. - Systemic risk analysis for the FSAP did not detect any substantial cyclical or sectoral imbalance that would warrant immediate deployment of any additional macroprudential instrument. (footnote 143) *Source: IMF staff summary of CNMV, DGSFP, AMCESFI, BdE and related FSAP material as presented in the provided content.* ### 70. The FSAP assessed the case for proposing the implementation of a ‘guardrail’ as a ### The FSAP assessment of a lending-standards “guardrail” and recommendation on a positive neutral CCyB ### Assessment of a ‘guardrail’ on lending standards - The FSAP assessed the case for proposing the implementation of a ‘guardrail’ as a protection against a major deterioration in lending standards, but decided against such a recommendation at the present time. - Form and objective: - A guardrail would take the form of setting certain limits, such as maximum levels of, say, loan-to-value ratios (LTV), or debt-service-to-income ratios (DSTI) on new loans. - The aim would be to provide protection against a possible major aggregate deterioration in lending standards from current practices. - Principal arguments against introducing a guardrail now: - Setting limits at levels weaker than current bank-applied lending standards could erroneously signal regulatory acquiescence that a deterioration in lending standards to the guardrail levels is acceptable, or maybe even desirable. - There is no current cyclical or sectoral need for such an intervention. - Implementation of regulation entails market distortions; analysis of distributional implications should be assessed before implementing such a measure. - Staff judgment and recommendations: - Staff judged that the cons outweighed the pros at the present time but encouraged the authorities to continue to keep the option in mind in the event of a significant change in lending standards or build-up of imbalances in real estate markets. - Continued analysis of how best to formulate such a guardrail would be helpful in the interim. - Additional technical note drawn from BdE staff work: - BdE staff have undertaken a granular study concluding that reliance on the LTV alone would be misplaced given certain biases, and that a richer set of lending standards should ideally be drawn on. ### Recommendation to introduce a positive neutral CCyB - Recommendation: - The introduction of a positive neutral level of the CCyB in Spain is recommended. - Rationale and benefits: - A positive neutral CCyB provides additional policy space to the authorities and delivers additional resilience to the banking system. - It supplements banks’ voluntary buffers, which then support continued credit provision and help to avoid a very costly deleveraging cycle and the associated harm to the economy. - It provides an extra policy instrument that can be released in the event of a major adverse exogenous shock (particularly one that is not preceded by a boom in lending and in the financial cycle). - Endorsements and international context: - The Basel Committee on Banking Supervision sees benefits in the ability of countries to set a positive cycle-neutral CCyB on a voluntary basis. - Adoption is also supported by the ECB and ESRB. - The approach has been introduced in multiple countries, inside the Banking Union (including Cyprus, Ireland, and the Netherlands) and outside (including Australia, Canada, Czech Republic, Sweden, and the United Kingdom). - Rates vary across countries but typically range between 1-2 percentage points, although Canada has set a domestic stability buffer (akin to a positive neutral CCyB) of 3.5% (with an upper limit of 4%). - Historical lesson: - As the CCyB rate in Spain was 0 percent in advance of the pandemic, Spain was one of a number of countries that did not have policy space to lower capital requirements when the adverse shock arrived. ### BdE technical analysis and next steps - BdE is undertaking detailed technical analysis of the case for the introduction of a positive CCyB. - Key analytical considerations identified by the BdE Governor: - There is an asymmetry between the costs of activating the CCyB in normal times (even in the absence of significant systemic imbalances) and the benefits of its release during downturns. - Gradual activation of the buffer at an early stage can make capital planning easier for banks when conditions are good, reduce potential negative credit supply effects of the activation, and take into account uncertainty in the identification of risks. - Analysis must go beyond these points to address factors affecting the appropriate level of the neutral rate, including: - the cyclical and structural characteristics of the economy and the banking sector; - the desired level of stabilization capacity; and - the degree of domestic and cross-border interconnectedness of the financial system and overall economy. - The analysis must also address the definition and characteristics of ‘normal times’, drawing on indicators of financial and economic cycles. - Staff expectations: - Staff welcome the detailed technical analysis and look forward to early communication of the technical analysis and the conclusions and policy decision to lower uncertainty and facilitate capital planning for the banking system. *Source: 1espea2024005-print-pdf - 70.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1espea2024005-print-pdf.pdf_