About financial stability
QUO VADIS
Which path will ensure a stable financial sector?
QUO VADIS
Which path will ensure a stable financial sector?
A financial sector is stable when it can function reliably even during crises or other adverse situations. Financial stability affects the availability of credit, the security of savings, as well as the functioning of the whole economy.
Macroprudential policy includes activities that contribute to financial stability. It either prevents systemic risks, mitigates them, or strengthens financial system resilience. In Slovakia, the authority responsible for conducting macroprudential policy is the central bank Národná banka Slovenska (hereinafter ‘NBS’ or ‘the Bank’). Through its publications, the Bank regularly informs both specialists and the general public about risks present in the Slovak financial market. If these risks need to be mitigated, the Bank may issue decrees, decisions or recommendations, or use other tools.
The Bank’s macroprudential, objectives, principles, tools and mandate are described in more detail in the NBS Macroprudential Policy Strategy, which also sets out the medium-term macroprudential priorities for Slovakia:
Objectives
The main objectives of macroprudential policy are the following:
Systemic risk reduction
Systemic risk is a risk of serious disruption of the financial system.
Cyclical risks usually arise during times of prosperity, for example due to risk underestimation. However, their negative impact only becomes apparent during major shocks or crises. This is why it is advisable to use good times to prepare for bad times.
Structural risks are related to the specificities of the financial system and economy. These may include, for example, a high share of lending to vulnerable sectors, systemically important banks, interconnectedness in the economy, digitalisation, climate-related risks, or high economic openness.
Strengthening the capital and liquidity resilience of financial institutions
Resilient financial institutions help keep the financial sector stable and capable of providing key services even amid various types of shocks or crises. Greater resilience also contributes to higher confidence in the financial sector in the long term.
Macroprudential policy does not aim to eliminate all shocks and risks entirely. Nor does it aim to address institution-specific risks, or to replace individual institutions’ internal risk management systems, or to mitigate fluctuations in asset prices, for example in the housing market.
Principles
The Bank’s macroprudential policy is guided by the following key principles:
Proactivity and flexibility
Risks are identified in their early stages. The Bank takes both prevention and corrective actions.
Transparency
The Bank clearly informs both specialists and the general public about its actions, the grounds for taking them, and their consequences.
Assessing the effectiveness of adopted tools
After adopting macroprudential policy tools, the Bank regularly assesses them to ensure they are as effective as possible.
Targeting, proportionality and robustnessnosť
Macroprudential policy tools are targeted at the most significant systemic risks so that financial institutions can withstand various unexpected shocks.
Close cooperation at both the national and international levels
Macroprudential policy is coordinated within the Bank as well as with Slovak and international institutions.
Capital based tools
For example: the countercyclical capital buffer (CCyB), the (O-SII buffer) for other systemically important institutions (O-SIIs), the systemic risk buffer (SyRB), and the capital conservation buffer (CCoB).
Borrower-based measures (BBM)
For example: limits on the debt service-to-income ratio (DSTI limit), the debt-to-income ratio (DTI limit), the loan-to-value ratio (LTV) and loan maturity.
Other legally binding tools
For example: risk weight adjustments for capital requirement calculations, large exposure limits, and liquidity requirements.
Non-binding and informal tools
For example: recommendations, guidelines, opinions, and analyses.
Mandate
The Bank has a statutory mandate to conduct macroprudential policy.
The Bank is mandated by the NBS Act and the Financial Market Supervision Act to support financial stability.
Specific powers related to capital-based tools are laid down in the Banking Act and powers related to borrower-based tools are laid down in the Housing Loan Act and the Consumer Credit Act.
Communication
The Bank provides transparent communication through its periodic and ad hoc publications:
Financial Stability Report
Poskytuje ucelený pohľad na vývoj v slovenskom finančnom sektore a ekonomike s dôrazom na riziká pre finančnú stabilitu.
Macroprudential Commentary
A brief overview of current trends with a focus on cyclical risks. It is also referred to by the NBS Bank Board when deciding on the countercyclical capital buffer rate.
Discussion notes
These address current topics in the area of financial stability.
Other types of communication
For the general public, the Bank communicates through its website (providing simplified summaries of the key issues), press conferences, infographics, videos, and through social (for example Facebook and LinkedIn) and traditional media.
Underlying data
For example: data on financial institutions, mortgage lending, and the supply and demand sides of the credit market.
Collaboration
In conducting macroprudential policy, the Bank collaborates with European and international institutions:
European Systemic Risk Board (ESRB)
The ESRB issues recommendations and warnings on risks to the EU as whole and to individual Member States, with the addressees expected to respond or provide an explanation of inaction.
European Central Bank (ECB)
The ECB has the power to increase requirements beyond the scope of macroprudential tools adopted by national authorities in certain areas. However, it may only intervene directly if it deems a domestic authority to have been insufficiently strict.