Macroprudential policy

The Bank of Greece monitors developments in the financial system and identifies potential systemic risks.

The Bank subsequently elaborates and implements measures to reduce the build-up of systemic risks and strengthen the resilience of the financial system. Macroprudential policy is the set of such measures.

Macroprudential measures pertain to the financial system as a whole or significant parts thereof, whereas microprudential supervision concerns individual financial institutions. The ultimate objective of macroprudential policy – the macroprudential mandate – is to safeguard financial stability.

Intermediate objectives

In pursuing the ultimate objective of safeguarding financial stability, the Bank of Greece seeks to achieve the following intermediate objectives:

  1. preventing excessive credit growth and leverage;
  2. preventing and mitigating excessive maturity mismatch and market illiquidity;
  3. limiting direct and indirect exposure concentrations;
  4. limiting the systemic impact of misaligned incentives with a view to reducing moral hazard;
  5. strengthening the resilience of financial infrastructures.

Macroprudential policy strategy

The Bank of Greece has defined its strategy for the conduct of macroprudential policy, which links the above intermediate objectives with available macroprudential measures, in the following stages: 

  1. The risk monitoring stage, where relevant indicators help to detect vulnerabilities in the financial system and to identify the associated systemic risks;
  2. The instrument selection stage, with a view to preventing and mitigating the relevant systemic risks;
  3. The implementation stage, where decisions are made on the use (activation, calibration, deactivation) of the appropriate macroprudential measures to achieve the intermediate objectives of macroprudential policy.
  4. The evaluation stage, where the impact of macroprudential measures is assessed and relevant conclusions are drawn.

Macroprudential measures

The institutional framework for achieving macroprudential policy objectives provides for a set of macroprudential measures.

The Bank of Greece has hitherto deployed the following two measures:

1. Countercyclical Capital Buffer

The Bank of Greece is responsible for setting the countercyclical capital buffer rate for Greece on a quarterly basis. Bank of Greece decisions setting the countercyclical capital buffer rate are taken with the consent of the Hellenic Capital Market Commission.

The countercyclical capital buffer aims to address the procyclicality of credit growth and leverage, i.e. to ensure an appropriate level of credit growth and leverage in both the upward and the downward phase of the business cycle. The countercyclical capital buffer rate can be set between 0% and 2.5% (exceeding 2.5% in exceptional cases). It is expressed as a percentage of the total risk exposure amount of institutions (credit institutions and investment firms) that are exposed to credit risk in Greece.

In an economic upswing, setting the countercyclical capital buffer rate at a level above 0% contributes to building up a capital buffer in excess of the minimum requirements applicable in the context of microprudential supervision. This prevents and mitigates excessive credit growth and leverage. Conversely, in an economic downturn, reducing the countercyclical capital buffer rate can encourage the provision of credit to the real economy, thereby softening the impact of the downturn.

The Bank of Greece has published its methodology for setting the countercyclical capital buffer rate on a quarterly basis, in line with Recommendation ESRB/2014/1 of the European Systemic Risk Board.

According to this methodology, the countercyclical capital buffer rate is set taking into consideration the “standardised credit-to-GDP gap”, which reflects the deviation of the ratio of credit to GDP from its long-term trend.

The Bank of Greece also takes into consideration certain additional indicators to monitor the build-up of cyclical systemic risk, more specifically, indicators monitoring credit developments, private sector debt burden, potential overevaluation of property prices, soundness of credit institutions, risk pricing and external imbalances.

Since 1 January 2016, the countercyclical capital buffer rate for Greece has been set at 0%, i.e. at the lowest end of the permissible range, thus not affecting the capital requirements for credit institutions and investment firms.

2. Other Systemically Important Institutions Buffer

The Bank of Greece is also responsible for identifying, among credit institutions authorised in Greece, other systemically important institutions (O-SIIs). O-SIIs are identified on an annual basis so as to consider the application of an O-SII buffer. It should be noted that there are no global systemically important institutions (G-SIIs) in Greece.

An O-SII buffer aims to reduce moral hazard and strengthen the resilience of systemically important credit institutions. In this context, moral hazard arises when a credit institution expects not to be let to fail given its systemic importance (“too big to fail”). An O-SII buffer limits excessive risk-taking by a systemically important credit institution through higher capital requirements, thus reducing moral hazard. Moreover, it cushions the systemic impact of misaligned incentives by strengthening the systemically important institution’s capital buffer to absorb potential losses and thus reduces contagion risk.

The O-SII buffer consists of Common Equity Tier 1 (CET1) capital and its rate is set by the Bank of Greece at a level up to 2% of the total risk exposure amount and is reviewed at least once a year.

The Bank of Greece has adopted the European Banking Authority (EBA) guidelines in relation to the assessment of O-SIIs (EBA/GL/2014/10). These guidelines lay down harmonised criteria, indicators, scoring methodology and thresholds, towards achieving convergence of national O-SII identification procedures, thus ensuring comparability, clarity and transparency in the assessment of systemically important institutions at EU level.

Since 1 January 2016, the Bank of Greece has been using the above methodology and has identified the following as O-SIIs: Alpha Bank S.A., Eurobank Ergasias S.A., National Bank of Greece S.A. and Piraeus Bank S.A.

The O-SII buffer rate had been set at 0% for the years 2016-2018 and has been set at 0.25% for 2019.

3. Other measures

To safeguard financial stability, the Bank of Greece has the following macroprudential measures at its disposal:

  • Capital Buffer of Global Systematically Important Institutions (G-SII Buffer);
  • Systemic Risk Buffer;
  • Level of the Capital Conservation Buffer;
  • Additional requirements for large exposures;
  • Increased risk weights for residential and commercial real estate exposures or intra-financial sector exposures;
  • Minimum loss given default rates for residential or commercial real estate exposures;
  • Liquidity requirements;
  • Public disclosure requirements.

Combined buffer requirement

The combined buffer requirement includes the Capital Conservation Buffer, the (institution-specific) Countercyclical Capital Buffer, a G-SII buffer, an O-SII buffer and a Systemic Risk Buffer.

The combined buffer requirement consists of total Common Equity Tier 1 (CET1) capital.

The combined buffer requirement for Greek banks is calculated as shown in the Table: Combined buffer requirement.

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