Financial Stability

Reciprocity

In an integrated financial system like the EU Single Market, strong policy coordination is needed to ensure the effectiveness of national macro-prudential policy. National measures are justified given the divergence of cyclical and structural risks in Member States. Yet, measures can have spillover effects on other countries (outward spillovers) and can sometimes be circumvented by foreign branches and cross-border lending (inward spillovers). In the absence of reciprocity, leakages could take place given that national measures would not apply to institutions providing cross-border services directly or through branches.

An equivalent measure targeting the same foreign exposure of domestically-authorised institutions should be enacted, in order to minimise regulatory leakage and cross-border effects of another country's macro-prudential policy measure.

The European Systemic Risk Board (ESRB) has an important coordination role for the assessment of measures, discussion of cross-border effects and recommendations on mitigating measures, including reciprocity. Reciprocation is the way by which the effectiveness and consistency of macro-prudential policy across borders within the EU can be safeguarded.

At the moment, requests for reciprocation by EU Member States and relevant non-Member States are sent to the ESRB. Following the receipt of the requests, the ESRB assesses such requests and issues subsequent recommendations to relevant authorities concerning reciprocity for certain measures. At this stage, the Central Bank of Malta (hereafter 'the Bank') may comply and reciprocate the measure following an internal assessment. If the Bank decides to not comply, it is obliged to explain to the ESRB the reasons for non-compliance.

Relevant Documents

List of measures reciprocated by the Bank following an ESRB recommendation under ESRB/2015/2

This list of measures refers only to the voluntary reciprocity of measures taken by the Bank following an ESRB recommendation under ESRB/2015/2 (as amended by ESRB/2019/1). Measures which are subject to mandatory reciprocity under the CRDV / CRR2 legislative framework, including but not limited to Articles 124 and 164 of Regulation (EU) No 575/2013 which enforce requirements directly on institutions, are not referred to in this list.

The table below includes macroprudential measures implemented in EU countries and the reciprocation decision adopted by the Central Bank of Malta. The Bank carries out periodic reviews on the exposures of domestic institutions to the relevant markets and will amend its decision taken, if deemed necessary.

Country

Macroprudential measure

ESRB Recommendation date

Decision of the Central Bank of Malta

Estonia

1% Systemic Risk Buffer on total risk exposures located in Estonia

24 June 2016

The Central Bank of Malta decided to reciprocate the Estonian measure by recognising a 1% systemic risk buffer to be applicable by all domestically authorised institutions when the respective exposures are equal to or exceed EUR 200 million through a Statement of Decision dated 24 October 2016.

Finland

A credit institution-specific minimum level of 15% for the average risk weight on the portfolio of residential mortgage loans secured by housing units in Finland for banks using the IRB approach

8 January 2018

The Central Bank of Malta has decided not to reciprocate the Finnish measure, given that Maltese credit institutions do not make use of IRB models for the purpose of calculating their regulatory capital requirements. In addition, Maltese credit institutions have no material exposures towards the Finnish mortgage market. 

 

Belgium

A flat risk weight add-on of 5 percentage points and a proportionate add-on of 33 per cent of the exposure-weighted average of the risk-weights applied by IRB banks to the portfolio of retail exposures secured by immovable property situated in Belgium

16 July 2018

The Central Bank of Malta has decided not to reciprocate the Belgian measure, given that Maltese credit institutions do not make use of IRB models for the purpose of calculating their regulatory capital requirements. In addition, Maltese credit institutions have no material exposures towards the Belgian mortgage market.

 

France

A tightening of the large exposure limit applicable to exposures to highly-indebted large non-financial corporations having their registered office in France to 5 per cent of eligible capital, applied to global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) at the highest level of consolidation of their banking prudential perimeter

5 December 2018

The Central Bank of Malta has decided not to reciprocate the French measure, given that Maltese systemically important institutions (O-SIIs) have no material exposures towards the French highly indebted large non-financial corporations (NFCs) having their registered office in France.

Sweden

Credit institution-specific minimum level of 25% for the average risk weight on the portfolio of residential mortgage loans secured by housing units in Sweden for banks using the IRB approach

15 January 2019

The Central Bank of Malta has decided not to reciprocate the Swedish measure, given that Maltese credit institutions do not make use of IRB models for the purpose of calculating their regulatory capital requirements. In addition, Maltese credit institutions have no material exposures towards the Swedish mortgage market.

 


List of the following countercyclical buffer (CCyB) rates recognised by the Bank:

This list of measures refers only to the discretionary recognition of CCyB rates by the Bank. This list does not include rates recognised under the framework of mandatory recognition of CCyB rates set by the designated authorities of other European Member States under the CRD IV/CRR legislative framework. List of the following countercyclical buffer (CCyB) rates recognised by the Bank:

  • Rates in excess of 2.5 per cent set in another Member State {currently not set}
  • Rates set in a third country where recognition follows a recommendation under ESRB/2015/1 {currently not set}