The NCMO meeting of 15 July 2020
The second meeting of this year of the General Board of the National Committee for Macroprudential Oversight (NCMO) was held on 15 July 2020 by written procedure.
During the meeting, Board members examined analyses and adopted measures concerning macroprudential policy and systemic risk, namely: (i) the regular analysis on the recalibration of the countercyclical capital buffer, (ii) the assessment of materiality of third countries for the Romanian banking sector in relation to the recognition and setting of countercyclical buffer rates, (iii) the implementation of the Recommendation of the European Systemic Risk Board on monitoring the financial stability implications of debt moratoria, and public guarantee schemes and other measures of a fiscal nature taken to protect the real economy in response to the COVID-19 pandemic (ESRB/2020/8), (iv) the implementation of the Recommendation of the European Systemic Risk Board on restriction of distributions during the COVID-19 pandemic (ESRB/2020/7), as well as (v) the analysis of the NCMO Working Group on addressing vulnerabilities from the widening of the agri-food trade deficit.
In addition, the NCMO General Board was informed of: (i) the results of the regular analysis on the systemic risk buffer, (ii) the estimated developments in Romania’s sovereign rating and the possible direct effects of its downgrade on the banking sector in the context of the current COVID-19 crisis, (iii) the systemic risks identified across the domestic financial system, and (iv) version 2.0 of the Methodology for identifying credit institutions’ critical functions.
The NCMO meeting ended with the unanimous approval of the macroprudential policy measures below:
- NCMO Recommendation No. R/3/2020 on the countercyclical capital buffer – In the current context of uncertainty generated by the COVID-19 pandemic, such an additional capital requirement is not necessary. Considering that total indebtedness currently remains below the signalling threshold, the National Bank of Romania is recommended to maintain the countercyclical buffer rate at 0 (zero) percent.
- NCMO Decision No. D/3/2020 on the assessment of materiality of third countries for the Romanian banking sector in relation to the recognition and setting of countercyclical buffer rates – The available data at end-2019 do not indicate any significant third country for the Romanian banking sector in relation to the recognition and setting of countercyclical capital buffer rates for 2020.
- NCMO Recommendation No. R/4/2020 on the implementation of Recommendation ESRB/2020/8 – The national authorities, namely the National Bank of Romania (NBR), the Financial Supervisory Authority (FSA) and the Government, are recommended to monitor, assess and inform the NCMO about the implications of the measures taken to protect the real economy in response to the COVID-19 pandemic.
- NCMO Recommendation No. R/5/2020 on the implementation of Recommendation ESRB/2020/7 – The NBR and the FSA are recommended to request financial institutions under their supervisory remit to refrain, at least until 1 January 2021, from undertaking any of the following actions: (i) make a dividend distribution or give an irrevocable commitment to make a dividend distribution; (ii) buy-back ordinary shares, (iii) create an obligation to pay variable remuneration to a member of a category of staff whose professional activities have a material impact on the financial institution’s risk profile, which has the effect of reducing the quantity or quality of own funds at the consolidated and/or individual level.
- NCMO Recommendation No. R/6/2020 regarding the NCMO Working Group analysis on addressing vulnerabilities from the widening of the agri-food trade deficit – The analysis carried out by the Working Group (published on the NCMO website) shows that the agri-food trade balance has become a vulnerability that may pose a potential systemic risk for at least two reasons: (i) the strong relationship between the worsening of the current account deficit and the outbreak of a financial or balance-of-payments crisis; (ii) the need to ensure food security, which is in fact one of the lessons of the COVID-19 pandemic crisis. Ten key measures are recommended, such as: developing programmes, through close dialogue with representatives of relevant associations, to implement the European Union’s Farm to Fork Strategy and the Declaration of cooperation on “A smart and sustainable digital future for European agriculture and rural areas”; enhancing the role of credit guarantee funds and of the Romanian Counter-Guarantee Fund in supporting agriculture and food industry firms; revising the certificates-of-deposit mechanism; improving the legislation on certifying and promoting agri-food products; designing a strategy for promoting high-quality food items, also via an increased role of quality schemes; implementing an industrial policy for the food sector. A methodology is also proposed for identifying firms that could be viewed as potential agri-food national champions, while the regular dissemination of additional statistical data is recommended for agri-food firms’ improved access to finance.
The National Committee for Macroprudential Oversight was established by virtue of Law No. 12/2017 on the macroprudential oversight of the national financial system, thus ensuring that Recommendation of the European Systemic Risk Board (ESRB) No. 3/2011 on the macroprudential mandate of national authorities was implemented. The NCMO brings together representatives of the National Bank of Romania, the Financial Supervisory Authority and the Government of Romania. The NCMO’s mission is to ensure coordination in the field of macroprudential oversight of the national financial system by setting the macroprudential policy and the appropriate instruments for its implementation.