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To that end, the authorities could increase the use of on press conferences, events, and other tailored communication channels (e.g., social media platforms).
Technical documents could be accompanied with non-technical summaries, chart packs, and heatmaps that would enhance readability and understanding of risk assessments.
45. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
45.
The macroprudential policy strategy should be updated periodically to align to evolving risks in line with its organic law.20 The macroprudential policy was developed and published in 2016 but has not been updated since then.
As new vulnerabilities emerge, changes to the intermediate objectives and to the toolkit might be needed, requiring an update of the strategy.
18 Banks fully or partially owned by the state account for more than two-thirds of RRE mortgages. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
19 Publication of records/minutes of macroprudential policy meetings is a common practice among several OECD countries.
(e.g., Czech Republic, Belgium, Denmark, Finland, France, and Ireland, amongst others).
The level of detail provided in these records varies. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In some cases, there is a short summary of meeting discussion points (e.g., France, Poland); in others, a lengthier discussion of risks and policy directions is given (e.g., United Kingdom); minutes are published in only one instance (United States).
20 Loi du 1er avril 2015 portant création d'un com... - Legilux (public.lu) ©International Monetary Fund.
Not for Redistribution LUXEMBOURG INTERNATIONAL MONETARY FUND 29 B.
Ability to Act 46. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Ability to Act 46.
The institutional arrangements provide broadly adequate powers to ensure CdRS’s ability to act.
The CdRS is empowered to make opinions, recommendations, and warnings to its members institutions on tools entrusted to them by European or national legislations, assorted with a “comply or explain” mechanism.
While not binding, the CdRS monitors the implementation of its recommendations and takes corrective actions if needed. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The CdRS and its members also have overall adequate power to obtain information enabling it to fulfill its macroprudential mandate.
The Organic Law gives the CdRS wide-ranging powers to request the information required to contain systemic financial sector risks.
The law of December 4, 2019, has further strengthened the BCL access to aggregated information from public entities to conduct analysis for the CdRS. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
While no formal arrangements are in place to ensure it, the sharing of information has been relatively fluid, although not always systematic.
47.
The ability of the macroprudential authorities to add new tools poses some challenges.
The presence of the MoF in the CdRS should facilitate the adoption of new laws. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Yet, recent experience with the introduction of BBMs in 2019 (Law of December 4, 2019) has revealed a lengthy (more than 2 years) and complex legislative process that potentially hampered the ability of the macroprudential authorities to act in a timely manner. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In its 2019 financial stability review, the BCL raised concerns about these delays and found that “… it is very regrettable that the vote on the bill took a considerable delay preventing the authorities from having the tools essential to the effectiveness of a macroprudential supervision consistent with the rising nature of systemic risks specific to the residential real estate market in Luxembourg”. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In addition, during the process, following the State Council (Conseil d’Etat), several amendments to the original draft law were introduced, to better define the scope of action in the use of BBMs.
These include imposing corridors (floor and caps) to the BBMs and introducing a sequencing for their activation, which could limit the ability to act in an appropriate and proportionate manner.21 Recommendations 48. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The operational agility of the macroprudential authorities’ framework should be further enhanced.
In a context of rapidly evolving risks and vulnerabilities, the macroprudential authorities should be able to adapt rapidly their strategy and tools and act in a timely manner.
This requires reducing unnecessary hurdles.
The authorities could for example consider special (faster) procedures for macroprudential laws. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In case of delays, the CSSF should use its semi-hard and soft 21 The corridors are as follows: (1) 75 percent to 100 percent for the maximum limit for the ratio between the total credit obligations of a borrower and the total market value of a given property (LTV ratio); (2) 400 percent to 1200 percent for the maximum limit for the ratio of the total amount of a borrower’s repayment obligations resulting from a loan secured by a mortgage on residential property and the borrower’s total available annual income (LTI ratio); (3) 400 to 1200 percent for the maximum limit for the ratio between the borrower’s total indebtedness and the borrower’s total available annual income (DTI ratio); (4) 35 to 75% for the maximum limit for the ratio between the total annual mortgage charges and the borrower’s total available annual income (DSTI ratio); and (5) 20 to 35 years for the maximum limit for the initial maturity of the loan (maturity limits). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The law also imposes to make sure that all other tools within the CRR/CRD are not effective to address the identified systemic risk before activating the BBMs.
For more details, see Opinion on additional macroprudential tools for residential mortgages (CON/2019/34) (europa.eu).
©International Monetary Fund.
Not for Redistribution LUXEMBOURG 30 INTERNATIONAL MONETARY FUND powers as needed. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Moreover, when considering new tools, the laws should strike the right balance between defining the scope of action and preserving sufficient flexibility to act.
In this context, regarding the BBMs law, while the corridors may be not too binding for now, the authorities are encouraged to regularly reassess whether they do not constrain their ability to act in a nimble and proportionate manner and review the law as needed where legally feasible.
C. Effective Coordination and Cooperation 49. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
C. Effective Coordination and Cooperation 49.
Coordination within CdRS members and with other domestic and external stakeholders has been overall effective.
As stipulated by its organic law, the CdRS role is to coordinate between its various members to contribute to financial stability through the cross- fertilization of views and exchange of information.
Preparatory technical meetings take place to coordinate and the “notes de surveillance” benefit from inputs from the different institutions. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
A working group has been recently formed to follow-up on the ESRB recommendation on CRE vulnerabilities.
Even in the absence of a formal mechanism, the exchange of information has been fluid although not always systematic.
In addition to regular meetings, exceptional CdRS meetings were called in periods of stress, allowing a rapid assessment of the risks and a coordinated response. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
At the European level, the ESRB collects and communicates policy decisions taken by national macroprudential authorities in its constituent countries and fosters the mutual recognition of macroprudential policy measures across its membership to reduce leakages.
The BCL and CSSF have been participating regularly in international fora and contributing actively to the regulatory/policy debates and research.
Recommendations 50. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Recommendations 50.
Enhanced coordination between macroprudential policy and other policies (in particular housing policies) could be highly beneficial.
Housing policies, whether targeting demand or supply, can impact house prices and carry significant financial stability implications, both in the short and the medium terms.
At the same time, macroprudential policy may affect housing affordability, especially in the short term. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Improved coordination between macroprudential and housing policies could be particularly important to enhance the effectiveness of macroprudential measures while minimizing its potential costs.
Financial stability considerations should be considered in the design/calibration of government policies (especially housing and fiscal policies).
In this context, the authorities should consider establishing a consultation mechanism between the government and the CdRS. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
SYSTEMIC RISK MONITORING AND ARTICULATION OF POLICY DECISIONS 51.
Monitoring and evaluating systemic vulnerabilities in the financial sector are crucial for the appropriate and timely calibration of macroprudential policy. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
This section reviews and assesses the existing framework of systemic risk monitoring in terms of (i) the availability of adequate data and indicators, (ii) the use of quantitative methods to detect and analyze systemic risks, and the articulation between systemic risk assessment and policy decisions.
©International Monetary Fund.
Not for Redistribution LUXEMBOURG INTERNATIONAL MONETARY FUND 31 A.
Data Issues 52. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Data Issues 52.
The authorities have made a remarkable progress in filling the data gaps identified in the 2017 FSAP.
In particular, • for households and residential real estate, harmonized data on the LTV and DSTI ratios as well additional relevant indicators are collected on semi-annual basis (CSSF circular N°18/703 and N°20/737), following the ESRB’s recommendation ESRB/2016/14. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The data collection has been instrumental in assessing the risk profile of new loans, although more granularity (for example through a richer bucketing of risks) is encouraged.
Also, the BCL uses triennial Household Finance and Consumption Survey (HFCS) to stress test households balance sheet.
• for commercial real estate (CRE), the CSSF has issued circulars for regular data collection from banks and investment funds (box 1). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
STATEC is working closely with Eurostat to develop a price indicator for CRE, although these efforts are facing technical hurdles related to the lack of transactions and price discovery especially in periods of downturn.
To date, as part of its follow- up of recommendations, the ESRB has assessed Luxembourg as fully compliant with respect to CRE. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
• for non-financial corporations, the AnaCredit EU regulation, 2016/867 has been transposed in Luxembourg via the BCL circular 2017/240 titled “introduction of granular credit risk”.
The database offers granular information about individual bank loans, including credit terms and conditions, credit status, etc.
However, the CSSF has faced so far challenges in accessing AnaCredit data. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
• for investment funds related data gaps, since the last FSAP, a new dedicated EU reporting for MMFs was introduced and implemented in accordance with article 37 of the regulation 2017/1131 of 14 June 2017 on money market funds.
In addition, article 4 of Regulation 2015/2365 of 25 November 2015 on transparency of securities financing transactions (SFTs) and of reuse and amending Regulation No 648/2012 introduced an EU-wide reporting on SFTs. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Efforts were also undertaken since the last FSAP to improve data quality in the prudential reporting, including setting up and automating controls on the UCITS Risk Reporting as well as implementing locally the EU data quality engagement frameworks on the AIFMD and MMFR reporting as well as the EU data quality action plans on EMIR and SFTR data. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Some data fields in the AIFMD reporting were changed from optional to mandatory in order to increase coverage, and the CSSF engaged with ESMA in order to provide guidance on the risk indicators in the AIFMD risk reporting which were not usable due to a lack of standardization.
53.
Ad hoc surveys and qualitative information from dialogues with market participants are also a valuable source of information. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In-depth discussions with the industry are conducted to better understand their practices and the potential impact of measures.
Where needed, these are complemented with ad hoc surveys.
For example, the CSSF launched a survey related to the Luxembourg real estate developers’ portfolio.
The domestic banks selected for this survey represented 92 percent of the total Luxembourg real estate developer’s portfolio. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The purpose of this thematic review was threefold: (i) to obtain an overview of the risks stemming from the slowdown of real estate development project prices and interest rates/construction costs increases, ©International Monetary Fund. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Not for Redistribution LUXEMBOURG 32 INTERNATIONAL MONETARY FUND (ii) to benchmark banks on their lending standards and practices at loan origination and their monitoring process, and (iii) to propose remedial actions based on the findings and risks identified in this review.
Box 1. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Box 1.
Efforts in Filling CRE Data Gaps The ESRB has issued two recommendations on closing real estate data gaps (ESRB/2016/14 & ESRB/2019/3), which were followed by the ESRB Recommendation on vulnerabilities in the commercial real estate sector in the EEA (ESRB/2022/9).
The authorities have made substantial progress in filling the identified gaps despite some technical challenges in compiling price indicators. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
As a result, as part of its follow-up the ESRB has assessed LU as fully compliant with respect to commercial real estate.
In order to ensure the follow-up of these recommendations, the CdRS has established a working group on real estate data gaps (“Groupe de travail sur les données immobilières”) in 2019. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The CdRS working group, chaired by the BCL, is composed of representatives of the BCL, the CSSF, the` CAA, the Ministry of Finance and STATEC and facilitates the coordination and development of a harmonized set of real estate indicators for banks, funds, and insurers (where applicable) as well as a set of physical CRE market indicators as recommended in ESRB/2016/14 and ESRB/2019/3. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
To close data gaps on CRE financing, and after coordination with the CdRS working group members, the CSSF has issued two regular data collections for banks and funds.
• For Banks, in 2022, the CSSF has published the circular N° 22/803, launching a semi-annual data collection on bank loans aimed at acquiring a CRE property or secured by a CRE property. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
This data collection is addressed to banks active in this sector and was designed based on extensive discussions with the main banks and the industry representatives to have a better understanding of market practices.
It has also been designed to meet the expectations of various stakeholders (ECB, ESRB, etc).
The CSSF can collect data on CRE exposures with some granularity depending on the purpose of the CRE loans, the property type associated to these loans, the location of the CRE property. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Data on LTV ratio (aggregate and by CRE purpose), interest coverage and debt service coverage ratios are also collected.
Moreover, the same level of granularity as the one of the CRE loans applies to data collected on non-performing loans for acquiring CRE, and to the loan loss provisions on loans for acquiring CRE.
Finally, all this set of indicators is collected not only on the stock of CRE loans, but also on the newly granted CRE loans. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
• For funds, the CSSF introduced in September 2021 a data collection on commercial real estate for investment fund managers.
This data collection takes the form of an online questionnaire, which benefitted from the collaboration with the funds industry’s professionals.
This data collection gathers data on CRE direct and indirect domestic and foreign investment to follow-up on the CRE market and related trends. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
It also gathers data according to several dimension such as the location (prime, non- prime), the type (office, retail etc.)
and the country where the building is located.
This set of indicators is collected not only on the stock of CRE loans, but also on the newly granted CRE loans.
Regarding physical indicators, the compilation of a CRE price index is ongoing work undertaken by STATEC. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
As a member of the Eurostat Task Force on Commercial Real Estate Indicators, STATEC participates actively in the development of physical CRE market indicators and a corresponding European wide legal framework.
Current practical challenges in construction of a commercial real estate price index ©International Monetary Fund.
Not for Redistribution LUXEMBOURG INTERNATIONAL MONETARY FUND 33 Box 1. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Efforts in Filling CRE Data Gaps (Concluded) for Luxembourg include a very low number of transactions per year, the difficult price measurement in multi-use properties, the definition of “prime” and “non-prime” real estate. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Therefore, STATEC, together with the national statistical institutes from other jurisdictions with small CRE markets, was in frequent exchange with Eurostat, in order to consider the challenges related to few market transactions in the new legal framework establishing the European wide data collection. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
STATEC expected that a new European regulatory framework for the collection of physical CRE market indicators would enter into force by end- 2025, followed by a first data collection in the first quarter of 2026.
In the meantime, STATEC has signed an agreement with one of the private actors to get aggregated data on commercial real estate data.
Recommendations 54. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Recommendations 54.
Building on recent efforts, the authorities should continue to improve the quality, granularity, and availability of data, especially on housing supply as well as households and corporate balance sheets.
• STATEC and relevant data sources should continue to fill data gaps on housing supply. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Data on completed buildings are available with a considerable lag (latest available is 2019) and estimates of stock of residential dwellings are only available at very low frequency through census data.
Plans to collect data on vacant dwellings/rental stock should be expedited.
The construction of a land price index and collection of associated transactions data by the “observatoire de l’habitat” is welcome, but higher frequency would be highly beneficial to detect potential speculative market movements. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
• Micro data on households’ balance sheets should be improved., The authorities’ efforts to analyze the potential setting up of a credit register for households are welcome and implementation should be expedited with clearly defined timelines (cf., Technical Note on banking supervision).
The BCL should also consider increasing the coverage of the HFCS (sample and response rate) and regularly adapting the questionnaire to emerging macroprudential questions. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
• The data on the corporate sector liabilities are subject to large revisions.
They are highly volatile partly because of large inter-company lending from special purpose entities and multinational companies.
STATEC should aim at better isolating these entities both in national and financial accounts.
There is also a need to improve the quality of the reporting on some balance sheet and P&L items in the central balance sheet office database (e.g., taxes, turnover, granular components of debt). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
B. Quantitative Methods 55.
The BCL and the CSSF have continued to develop a comprehensive systemic risk monitoring framework in line with the 2017 FSAP recommendations The previous FSAP had assessed the operational capacity as broadly adequate.
It recommended the authorities to strengthen monitoring of residential real estate, non-banks including interconnectedness between the investment fund industry and banks, as well as the corporate sector.
The FSAP also called to ©International Monetary Fund. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Not for Redistribution LUXEMBOURG 34 INTERNATIONAL MONETARY FUND strengthen stress-testing capacity of investment funds and prepare a study on liquidity management tools.
56.
The authorities continued to strengthen their monitoring of the residential real estate market and households’ vulnerabilities. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The BCL and CSSF risk assessment framework includes a comprehensive analysis of house price growth, overvaluation indicators (using both statistical and model-based indicators), as well as estimates of downside risk with house price-at-risk modeling.
They also monitor mortgage credit developments (credit growth, credit-to-GDP gap, lending standards, pockets of risky lending), household debt, domestic bank exposures and mortgage risk- weights. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The BCL has developed a stock-flow model to assess the gap between housing supply and demand.
Both the BCL and the CSSF participate in SSM and ECB/ESRB working groups on residential real estate.
The BCL also participates in the BIS CGFS Study Group on housing policies.
The modelling of house prices should continue to be developed. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Current models are in general partial equilibrium models that do not capture the interplay between the labor, housing, and credit markets, which in the case of Luxembourg, go beyond the domestic market.
They also do not incorporate the impact of government and macroprudential policies (e.g., on the user cost of housing).
57.
Efforts to better assess corporate vulnerabilities are still at early stages and should be sustained. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The BCL developed econometric models to project the number of bankruptcies and NPLs by sector in Luxembourg.22 It also developed a set of risk monitoring indicators specific to non- financial companies using both AnaCredit.
Finally, following the recommendation of the European Systemic Risk Board issued on December 1, 2022, BCL and CSSF have stepped up the monitoring of banks and funds CRE exposures as well as lending standards and practices. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The BCL has recently obtained access to nonpublic balance sheet data, which will help develop corporate balance sheet stress test and analysis.
58.
The BCL and CSSF have bolstered their stress testing capacities, including for NBFIs, to assess the resilience of the financial sector to adverse shocks. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
• On solvency, the BCL developed a top-down stress test using mixture VAR (MVAR) model and projecting the probability of default of banks’ counterparts following different shocks as well as the impact on capital buffers.23 CSSF relies on top-down stress tests to assess the loss- absorptive capacity of the banking sector and inform micro and macroprudential actions. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
It also conducts sensitivity analysis/stress-test based on real estate shocks.24 22 See Boubacar Diallo and Lucas Hafemann (2022), 228812_BCL_RSF_2022_04___chap4_ann_1.pdf, pp150-168.
23 For more details, see P. Guarda, A. Rouabah et J. Theal (2013): A mixture vector autoregressive framework to capture extreme events in macroprudential stress tests, Journal of Risk Model Validation 7(4), pp.
21-51. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
21-51.
24 The sensitivity analysis allows to observe the level of capital shortfall compared to the hurdle rate according to (i) default rate (ranging from 0 percent to 25 percent) and (ii) real estate price decline (ranging from 0 percent to 50 percent).
It is performed on the 7 most important banks in the domestic RRE market.
This sensitivity analysis is also performed for exposures towards real estate developers and constructions companies.
©International Monetary Fund. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
©International Monetary Fund.
Not for Redistribution LUXEMBOURG INTERNATIONAL MONETARY FUND 35 • On systemic liquidity risk and market risks, the BCL compiles several indicators of liquidity for investment funds.
CSSF performs an annual assessment of maturity transformation between liabilities and intragroup assets at all banks. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The CSSF and BCL monitor the sensitivity of banks’ debt securities portfolios to changes in interest rates and credit spread on a quarterly basis, based on the modified duration of the debt securities held by banks and funds.
In addition, the CSSF monitors on a semi-annual basis the sensitivities of debt securities portfolios of UCITS to changes in interest rates and credit spread, based on the univariate stress test reported in the UCITS Risk Reporting. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The sensitivity of MMFs is monitored via the quarterly EU reporting including indicators like WAM and WAL as well as standardized stress test covering inter alia interest rate and credit risks.
Finally, in line with FSAP recommendations, the CSSF developed a liquidity stress testing (LST) framework for investment funds, considering second round effects and extending asset classes, and published a working paper on the effectiveness of LMTs.
• Interconnectedness.
The BCL has developed network analysis. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The BCL has developed network analysis.
The CSSF monitors potential contagion effects between Luxembourg banks through the simulation of its annual bank interconnectedness stress test.
Based on the CSSF solvency stress test scenario and other scenarios (that are based on the identified main vulnerabilities), the impact on bank capital and banks’ risk weighted assets is simulated. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Second round effects via interbank exposure (based on the Large Exposure Reporting (LAREX)) and third round effects are also simulated. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The CSSF conducts a bi-annual stress testing exercise focusing on interlinkages between banks domiciled in Luxembourg and investment funds (both in Luxembourg and abroad).25 Notwithstanding, these commendable improvements, giving their increasing role in financial intermediation, the monitoring of other financial institutions and their contribution to the financing of the economy and potential contagion channels should be further strengthened.
59. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
59.
The CdRS uses guided discretion to decide about macroprudential measures.
The CdRS reviews a broad set of indicators and models.
These indicators are related to the intermediate objectives defined in the macroprudential policy strategy.
For some instruments, such as the CCyB or OSII buffers, there are well defined thresholds for the associated indicators, that guide the decision while keeping space for judgment. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
For example, the activation of the CCyB in end-2018 has relied on a broader set of indicators.
For others, the thresholds are defined internally by the members and the mapping between the objectives, the indicators and the instruments are less clear.
When deciding about the activation/loosening/tightening of the measures, BCL and CSSF conduct cost-benefit analysis based on welfare-based models and counterfactual simulations.
60. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
60.
Despite BCL and CSSF significant efforts, the assessment of macroprudential policy stance and systemic risks remains challenging.
First, like in other countries, the lack of historical time series on asset quality, credit conditions and history of macroprudential policy makes it difficult to assess ex-ante the impact of macroprudential measures. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
This could lead to some fear of action 25 The CSSF adopts two approaches two calibrate outflow rates for funds’ deposits at Luxembourg banks: (i) outflow rates vary between 40% and 100%, depending on the fund type, and (ii) deposit outflow rates depend on a redemption shock and liquid assets holdings of each fund.
Deposit outflows are then compared to banks’ counterbalancing capacity, including short-term intra-group placements.
©International Monetary Fund. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
©International Monetary Fund.
Not for Redistribution LUXEMBOURG 36 INTERNATIONAL MONETARY FUND especially if risks are not perceived as imminent.
Second, many indicators and models developed by BCL and CSSF are subject to substantial uncertainty due data revisions, volatility, etc. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
For example, several measures of the macroprudential policy stance and the cyclical position such as growth/house price at risk models, credit to GDP gap and house price gap rely on GDP (or a measure of income) as a major variable, which is highly volatile and subject to large revisions (Figure 12). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
This adds to models’ uncertainty and could significantly undermine the assessment of systemic risks, reduce confidence in the indicators/analysis, increase the weight of judgement in decisions and contribute to inaction bias.
To mitigate these risks, the BCL is relying on average measures as well signal approach (AUROC) based on multiple indicators.
Figure 12.
Luxembourg: Uncertainty in the Assessment of Cyclical Position Recommendations 61. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
A better mapping of objectives, indicators and instruments should be considered.
The authorities should increase reliance on indicators less subject to revisions.
In parallel, they should coordinate with STATEC to better identify and isolate potential sources of volatility in national and financial accounts. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In addition, the authorities should set internal thresholds for household indebtedness and real estate related indicators that could have a structural and cyclical (adjustable) components and would trigger discussions about potential action.
While keeping a role for judgment, decisions not to act if these thresholds are breached should be sufficiently motivated. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In general, a gradual approach in the calibration of tools and the use of combined measures could reduce uncertainty about the impact of macroprudential policy and increase their effectiveness.
POLICY TOOLS AND CALIBRATION 62.
In the short term, macroprudential policy should lock-in bank capital headroom using targeted capital-based measures. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
FSAP analysis suggests that the increase in interest rates have reduced the lending and collateral stretch while increasing stock vulnerabilities for both households and corporate.
It also found that although banks have high coverage ratios, a sharp correction real estate prices would expose few banks with high real estate exposures to more material unexpected ©International Monetary Fund.
Not for Redistribution LUXEMBOURG INTERNATIONAL MONETARY FUND 37 losses. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
While banks have enough capital buffers on aggregate, it is recommended to preserve resilience by increasing macroprudential capital requirements, preferably through sectoral systemic risk buffers on real estate exposures.
Compared to the CCyB, the sectoral systemic risk buffer allows for more precise targeting of the stock vulnerability.
High profitability and ample capital headroom would mitigate the impact on capital costs and reduce procyclical effects. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In addition, while banks have in general high coverage ratios (collateral and provisions) on real estate related loans, the authorities should continue to closely monitor collateral valuation effects and refinancing/liquidity risks in the real estate sector, while maintaining sound lending practices to the sector.
63.
Income-based measures should be introduced early in the recovery cycle to address rising households’ indebtedness. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The introduction of the LTV and the stress test requirement of 200bp of borrowers’ capacity to repay are welcome.
However, they fell short of tackling the rising housing indebtedness.
As suggested by the households’ stress test, vulnerabilities are not restricted to lower income households, it is important to make sure that to avoid further build-up vulnerabilities on new flows through income-based measures.
Jurča et al.
(2020) and Giannoulakis et al. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Jurča et al.
(2020) and Giannoulakis et al.
(2023) find a nonlinear complementarity between DSTI and LTV limits in reducing the probability of default, thereby lowering credit losses and preserving solvency ratios.
The maximum loan-to- value limit of 100 percent is very high and should also be reduced gradually over time.
64.
FSAP Analysis shows several benefits and little costs in implementing-income based limits. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Extending Nakamura (2023), the FSAP has calibrated a continuous-time heterogeneous agent model for Luxembourg with a stochastic income stream and flexible housing supply.26 The introduction of income-based limits is found to reduce house prices in the medium term in a context of supply rigidity, thereby reducing households indebtedness and preserving consumption in case of a shock. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Although housing affordability (measures by house ownership) declines, our results suggest that for a large share of households, the benefits from lower house prices would outweigh the financial constraint impact.
This would be consistent with the authorities’ objective of avoiding the exclusion of more households from the housing market.
The affordability cost for low- income could be compensated through social housing and other targeted policies. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
26 We use a diffusion process with variance of steady state log-normal distribution calibrated to match observed after-tax Gini coefficient in Luxembourg.
©International Monetary Fund.
Not for Redistribution LUXEMBOURG 38 INTERNATIONAL MONETARY FUND Figure 13. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Luxembourg: Impact of the Introduction of Income-Based Limits: Evidence from a Continuous Heterogenous Agent Model Source: Fornino and Jardak (Forthcoming) Notes: In the upper chart, we compare the long-term outcomes (steady states) relative to the baseline in the following cases: the LTV varies continuously from 70 percent to 95 percent (blue line) and a DTI of 615 percent is introduced along with the LTV tightening (orange line). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
In the bottom chart, we compare the share of homeowners by income level in the baseline where the LTV limit is set at current level (blue line) and when it is combined with a DTI (orange line).
©International Monetary Fund.
Not for Redistribution LUXEMBOURG INTERNATIONAL MONETARY FUND 39 65.
The authorities should immediately start working on the calibration of income-based limits. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
FSAP analysis suggests calibrating stressed-DSTI around 45-50 percent, possibly tied to the current interest rate stress test required by CSSF for mortgages.27 The calibration of the stressed interest rate could be rule-based, as for instance in Canada or Estonia, where the stressed interest rate is defined as the maximum between a flat rate and the current mortgage rate augmented by a certain margin. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Given uncertainty about the impact, the authorities could apply a gradual approach, implementing a speed limit that gives some flexibility for banks, and tightening it when the recovery firms up.
Figure 14. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Figure 14.
Luxembourg: Calibrating Debt-Service-to-Income Limit (Changes in Probability of Default (PD) of households in different quintiles (Q) between different DSTI thresholds) Notes: The results are based on a horse race, estimating the cumulative probability of default below and above different DSTI thresholds in the stress scenario (X-axis).
The “optimal” thresholds correspond to the higher PD multiples. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
The “optimal” level for all households is 45 percent, while by income level, most peaks are around 50 percent.
66.
Over the medium term, the CdRS should evaluate the benefits of a positive neutral CCyB and modify its CCyB framework accordingly if the introduction of such a buffer is deemed beneficial. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Recent years’ experience has shown that shocks could be asymmetric and that an unexpected sudden credit contraction could occur even when there are no signs of excessive 27 Our results are similar to those of another IMF forthcoming work, using a different methodology to identify vulnerable households (Valderrama and others, 2023).
©International Monetary Fund.
Not for Redistribution LUXEMBOURG 40 INTERNATIONAL MONETARY FUND credit built-up. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
A positive neutral rate could address such concern and provide releasable buffers against unexpected macro-financial shocks that are unrelated to the credit cycle.
By keeping the CCyB at 0.5 since 2019, the CdRS and the CSSF is de facto following the same logic.
67.
Support measures to housing demand and purchasing power should be carefully (re) considered. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Even if temporary, measures to support housing demand, especially untargeted tax incentives and buy-to-let, could support demand but risk impeding the orderly rebalancing of the housing market.
Over time, they could lead to moral hazard and encourage risk-taking behavior by borrowers and lenders. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Assistance to viable real estate developers could be envisaged under strict conditions and support in the completion of unfinished projects (e.g., in the form of guarantees under strict underwriting standards) could be also considered.
In addition, in line with past year article IV recommendations, the authorities should consider frontloading public projects, with greater involvement of the private sector. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Over the medium term, the authorities should consider redesigning help-to-buy policies, including by gradually phasing out interest payment deductibility, and expediting measures to unlock supply bottlenecks.
©International Monetary Fund.
Not for Redistribution LUXEMBOURG INTERNATIONAL MONETARY FUND 41 Table 2. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Luxembourg: Use and Calibration of Borrower-Based Limits in Selected EU Countries Austria Belgium Canada Cyprus Czechia Denmark Estonia Finland France Iceland Ireland Latvia Loan-to-value (LTV) 90% (20% speed limit) 90% for BTL (with 10% allowed up 90%); 90% for FTB (with 35% allowed up to 100% and 5% over 100%); 90% for SSB (with 20% allowed up to 100%) 95% fpr owner occupied with government guarantee up to 500,000; 80% for others 80% for FTB, 50% for construction of luxury properties, 70% for others 90% for those under age 36, 80% for others. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
95%; the share of loans with an interest rate fixation of less than 2 years with an LTV of 75% or above should not exceed 25% 90% if guaranteed by KredEx (15% speed limit); 85% for others (15% speed limit) 95% for FTB, 85% for others. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
85% for FTB, 80% for others 90% for FTB (15% 15% speed limit); 70% for BTL (10% speed limit); 80% for others 95% for mortgages with state gurantee;70% for BTL, 90% for others Debt service to income (DSTI)or stressed DSTI 40% (10% speed limit) 50% 39% stressed GDS and 44% stressed TDS for loans with government guarantee 80% 50% for thse under age 36, 45% for others 50% stressed DSTI 35% 40% sressed DSTI for FTB; 35% for others (5% speed limit) 40% (10% speed limit) Loan-to-income (LTI) - LTI above 4 requires stress testing 3.5 for FTB (20% speed limit); 3.5 for SSBs (20% speed limit) Lithuania Luxembourg Netherlands New Zealand Norway Poland Portugal Slovakia Slovenia Sweden Switzerland United Kingdom Loan-to-value (LTV) 70% for indebted SSB (with a current LTV of at least 50%), 85% for others 100% for FTB, 90% for owner occupied (15% speed limit), 80% for others 100% 65% for investment properties (5% speed limit); 80% for owener- occupied (15% speed limit) 60% for second homes in Oslo, 85% for others 90% for insured or overcollateraliz ed mortgages, 80% for others 90% for own and permanent residence, 80% for others 80% (with 20% allowed up to 90%) 80% for FTB, 70% for others 85% 25% for investment proprerties, 90% for others Debt service to income (DSTI)or stressed DSTI 40% unstressed; 50% stressed DSTI; 5% allowed up to 60%) 13-36% depending on income and interest rate 50% (with 10% alloed up to 60%) 60% (with 5% allowed up to 70%) Loan-to-income (LTI) 4.5 times (15% speed limit) Sources: ESRB macroprudential | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
(15% speed limit) Sources: ESRB macroprudential database (sept 2023), EBA transpancy exercise 2021 Notes: FTB stands for first-time buyers, BTL is buy-to-let. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
ab e .
Use a d Ca b at o o o o e ased ts Se ected U Cou t es ©International Monetary Fund.
Not for Redistribution LUXEMBOURG 42 INTERNATIONAL MONETARY FUND References Diallo, B. and Hafemann, L., 2022.
"Insolvency prospects for the Luxembourg nonfinancial corporation sector”, financial stability review 2022, Chapter 4, Banque Centrale du Luxembourg.
Ding, X. and Tressel, T., 2021.
“Global corporate stress test –impact of the COVID 19 pandemic and policy responses”, IMF Working Paper (WP/21/212). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_2/1725546562865.pdf | https://www.elibrary.imf.org/downloadpdf/journals/002/2024/183/002.2024.issue-183-en.pdf | Luxembourg |
Dirma, M., and Karmelavičius, J.
2023.
“Micro-assessment of Macroprudential Borrower-based Measures in Lithuania,” Occasional Paper Series No.
46.
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