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Country Year Background and Motivation Action – Macroprudential Tools Used
Indonesia
2010-2011
The Indonesian economy experienced rapid growth with rising inflationary pressure, partly due
to massive capital inflows from advanced economies. So the authorities took action to:
contain inflationary pressure
reduce vulnerability from capital inflows
Reserve requirements: the reserve requirement for local currency deposits was
raised from 5% to 8% (2010) and, for foreign currency deposits, it was raised from
1% to 5% (2011) and then to 8% (later in 2011). The authorities introduced
additional reserve requirement for banks with loan to deposit ratios below
78 percent or above 100 percent (March, 2011).
Ireland 2006
Ireland experienced rapid mortgage growth between 2000 and 2006. Financial deregulation, a
positive macroeconomic outlook, and immigration flows had set the stage for a rapid escalation
of real estate prices and credit. Also, capital gains taxes on non-owner-occupied property were
cut in half, and residential property taxes were fully removed, slashing the user cost of housing.
Mortgage debt to GDP grew by an astonishing 159 percent between 1996 and 2005, while
house prices rose by 217 percent. The authorities took action to:
dampen credit growth
strengthen banks against the backdrop of rapid mortgage growth
Risk weight: increase in risk weight for mortgages from 50% to 100% of the loan
value, on the portion of each loan exceeding 80% of the value of the property
(2006)
Italy 2007
Italian bank lending accelerated owing to strong corporate demand for funds fuelled by the
recovery in activity; bank lending to households continued to grow fast. The proportion of
loans associated directly or indirectly with real estate activity increased further. Motivation to
take action was to reduce lending cyclicality.
LTV: introduction of caps on LTV (2007). Mortgages secured by residential real
estate are discouraged when they are beyond 80% loan to value. Tighter capital
requirements are requested for loans above 80% loan to value.
Korea
2002-2011
The Korean banking system was vulnerable to housing market booms. In the aftermath of the
Asian crisis, expansive policies to stimulate the economy created a credit boom (in particular,
credit cards), the bust of which came in 2003 and left policymakers with a desire for tougher
regulation. Real house prices increased by 26 percent from 2001Q1 to 2003Q3. After stalling
in 2004, price appreciation resumed in 2005 and recorded an increase of 14 percent
between 2005Q1 and 2007Q1. But prices declined again due to the negative effect of the global
financial crisis. Given the systemic impact of housing policies, both on consumer confidence
and overall macroeconomic management, as well as the social welfare purposes, the Korean
authorities tightly regulate the housing market. The main aims are to:
maintain positive but limited house price appreciation
maintain consumer confidence through housing market policies
support construction sector
provide for the housing needs
more recently limit household debt
LTV: introduction of caps on LTV ratios in 2002. Since then, tightened 4 times
and loosened once in accordance with property price fluctuations.
DTI: introduction of caps on debt-to-loan ratio in 2005. Since then, tightened
4 times and loosened 2 times in accordance with property price fluctuations.
Loan-to-deposit ratio: reduction in banks’ loan-to-deposit ratio to 100% starting
in 2014 (November 2009, the deadline was shortened to end-June 2012, in
June 2011).
Reserve requirements: increase in reserve requirements from 5% to 7% for
demand deposits, money market deposit accounts, and other non-savings deposits
(2006). Reduction in reserve requirement from 1% to 0% for long-term savings
deposits (2006). The overall reserve requirements increased from 3% to 3.8%
(November 2006). Also, the reserve requirement on demand deposits in foreign
currency increased from 5% to 7% (2006).
Other instruments: tax incentives, subsidized financing, government construction
and purchases of unsold houses, direct support for the construction sector, and
moral suasion on lenders.
2009-2011
In the years leading up to the financial crisis, the Korean banking sector experienced a large
build-up in short-term external debt. The main motivations to take action were to:
reduce short-term external debt and reduce capital flow volatility
to reduce wholesale financing
strengthen foreign currency liquidity standards in order to reduce maturity
mismatches and improve the quality of liquid assets
prevent excessive foreign currency bank loans from turning into systemic risks
Off-balance-sheet limits: introduction of a ceiling on banks’ foreign exchange
forward positions (2010) and tightened further in 2011
Lending ceiling: limits set on foreign currency loans (2010)
Liquidity: use of stronger foreign currency liquidity standards (2009)
Tax: reintroduction of a withholding tax on foreign purchases of treasury and
money stabilization bonds and of a macroprudential levy on banks’ non-deposit
foreign currency liabilities (2011)
Restriction on investment in foreign currency denominated bonds:
introduction of restriction on domestic banks and other institutional investors
onshore from investing in Kimchi bonds (foreign currency denominated bonds
issued by Korean banks and corporate) that are intended to be converted into
Korean won for domestic use (2011)
Lebanon 1997-2009
Lebanon banks carried a substantial maturity mismatch from funding their lending operations
largely from short-term deposits and a significant foreign currency exposure from foreign
exchange lending to unhedged clients. The central bank introduced measures to reduce open
currency positions and the resulting risk from foreign exchange fluctuations.
NOP: introduction of foreign currency exposure limits as a share of bank’s Tier I
capital (1997) and a foreign currency liquidity ratio (2009)