Macroprudential policy

Pursuant to the Act on the Czech National Bank, the CNB maintains financial stability in the Czech Republic. The CNB’s task in this area is to identify, monitor and assess risks jeopardising the stability of the financial system. To prevent or mitigate these risks, the CNB contributes by means of its powers to the resilience of the financial system and the maintenance of financial stability and thus creates macroprudential policy. On the practical level, macroprudential policy can be defined as the application of a set of instruments whose aim is to reduce the vulnerability (or increase the resilience) of the financial system by containing the risks that individual financial institutions or the links between them may create for the system as a whole.

Macroprudential policy strategy

Objectives of macroprudential policy

In accordance with the ESRB’s recommendation (external link), the CNB’s selection of suitable macroprudential instruments for the banking sector is based on intermediate objectives which reflect the existence of multiple sources of systemic risk and their own transmission mechanisms.

The key objectives of macroprudential policy include:

  • to limit systemic risks associated with excessive credit growth and leverage;
  • to mitigate and prevent excessive maturity mismatch and market illiquidity;
  • to limit direct and indirect exposure concentrations;
  • to limit the systemic impact of misaligned incentives with a view to reducing moral hazard;
  • to strengthen the resilience of financial infrastructures.

Summary of intermediate objectives and macroprudential instruments and evolution of specific risks.

The macroprudential policy tools applied in the Czech Republic

Macroprudential policy tools include above all macroprudential capital buffers for banks that have become part of the EU regulatory framework due to the implementation of the CRD IV/CRR package. In addition to capital buffers, the CNB has at its disposal tools targeted at specific and sectoral risks. If it identifies systemic risks, the CNB can apply some of these tools again on the basis of CRD IV/CRR and others on the basis of ESRB recommendations (external link). The individual macroprudential policy tools are described in detail in the ESRB Handbook on Operationalising Macro-prudential Policy in the Banking Sector (external link).

Other macroprudential policy tools applied abroad

  • Higher requirements on capital, liquidity, large exposures and risk weights (activation of Article 458 of CRR)
  • Tools related to the property market (activation of Articles 124 and 164 of CRR)

The concept of reciprocity has been incorporated into the rules governing macroprudential policy in the EU in order to make that policy as effective and consistent as possible.

Stance of the CNB on international initiatives in the area of macroprudential policy and financial stability