Since 2015 the FCMC sets and publishes, on a quarterly basis, a CCyB rate applicable to relevant exposures to residents of the Republic of Latvia, which Latvian and foreign banks (and in certain cases, also investment firms) start applying in 12 months after the rate has been set for purpose of carrying out the calculation of the institution-specific CCyB rate.
The objective of the CCyB is to ensure that credit institutions accumulate, during periods of economic growth, a sufficient capital base in order to absorb losses in stressed periods; thus it serves as a safety cushion enabling credit institutions to continue lending under unfavorable economic conditions.
The CCyB rate is determined taking into account respective recommendations issued by the European Systemic Risk Board, including the CCyB guide calculated for a respective quarter and other indicators that are considered relevant for assessing the intensity of cyclical systemic risk.
Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures amends the procedure by which the EU Member States decide on setting the CCyB rate. As these amendments are implemented in the Credit Institution Law, the FCMC will continue as before to assess on a quarterly basis the intensity of cyclical systemic risk and the appropriateness of the applicable CCyB rate, as well as publish respective assessment in its homepage.
However, going forward, a decision on a new CCyB rate will be taken not quarterly (as up until now) – but only when the CCyB rate is changed – which in case of Latvia means when it will be increased from its current setting of 0%.
Credit institutions will have to start applying the rate of 0% in the calculation of the institution-specific CCyB rate from 1 May 2022 onwards, and it will be applicable until the next decision of the FCMC.
More information on the macroprudential supervisory framework in Latvia and application of the CCyB can be found in the section Macroprudential supervision of FCMC’s homepage.
Senior Public Relations Specialist,
Head of Working Group on National Financial Literacy Strategy