Publication of Circular CSSF 16/643: Opinion and recommendation of the Systemic Risk Board

The publication of Circular CSSF 16/643 follows the opinion and recommendation of the Systemic Risk Board (“SRB”) (CRS/2016/004) adopted on 1 July 2016 relating to the risk weight applied by banks to retail exposures secured by residential property located in Luxembourg.

In its opinion, the SRB informs the banks and the CSSF that it considers that the use of rating systems for calculating risk-weighted exposure amounts for credit risk under the Internal Ratings Based Approach should not result in an average risk weight applied to all retail exposures (except for SMEs) secured by residential property located in Luxembourg below 15%. Thus, a risk weight of 15% is considered as representing the lowest level.

The recommendation of the SRB (CRS/2016/004) calls on the CSSF to take any action deemed appropriate to ensure that the necessary requirements with respect to the opinion of the Board are fulfilled and to provide the SRB by 31 October 2016, at the latest, with a written report on the practices of the Luxembourg credit institutions in this matter.

Circular CSSF 16/643 requires the banks active in the domestic residential real estate sector and using the Internal Ratings Based Approach to communicate to the CSSF by 30 September 2016, at the latest, whether they comply with the opinion of the SRB and, if not, to indicate any measures taken in order to become compliant.