Annex B. Macro-prudential responsibilities and tools of the CNB
The CNB’s mandate for conducting macroprudential policy is laid down in Act No. 6/1993 Coll., on the Czech National Bank, which stipulates that the CNB shall, among other things, maintain financial stability. The CNB is expressly entrusted to “identify, monitor and assess risks jeopardising the stability of the financial system and, in order to prevent or mitigate these risks, contribute by means of its powers to the resilience of the financial system and the maintenance of financial stability; where necessary, it must co-operate with the relevant state authorities in setting macroprudential policy”. The unit at the CNB responsible for financial stability and macroprudential policy comes under the broader remit of financial market supervision. It therefore works in close co-operation with other CNB supervisory units responsible for safeguarding and maintaining the individual stability of financial market entities (CNB, 2020[1]).
The CNB’s pursuit of macroprudential policy is based on powers laid down in the legislation in force in the Czech Republic – Above all, Articles 2e) and 2d) of Act No. 6/1993 Coll., on the CNB, 26 Article of Act No. 21/1992 Coll., on Banks, Directive No 2013/36/EU of the European Parliament and of the Council (CRD) and Regulation (EU) No 575/2013 of the European Parliament and of the Council (CRR) (CNB, 2020[1]).
The legal basis for CNB’s macroprudential policy duties was amended into the Act on the CNB, e.g. the option of issuing recommendations, alerts or warnings to the public or to individuals, the general authority to impose remedial measures in the event of a breach of any sectoral regulation, and changes in the reporting and statistics framework. The amendment also forbids searches in inspection files and allows decisions to be changed (not only revoked) in appeals proceedings in all sectors (CNB, 2014[2]).
The CNB applies its macroprudential instruments both individually and simultaneously and has the following tool types at his disposal (CNB, 2020[1]):
Legally binding instruments applied to entities regulated and supervised by the CNB, non-compliance with which is subject to penalties. Instruments defined in Czech law have the strongest legal position. They include: instruments relating to capital, capital buffers, risk weights of exposures, liquidity and concentration of assets, mostly those of the banking sector; and instruments which the CNB may use for a period of six months (in the form of a provision of a general nature) to mitigate the consequences of or to curb risks which are not anticipated and relate to the banking sector.
Instruments based on recommendations, which are not laid down directly in the legislation. The CNB uses these instruments to recommend specific responses to regulated or other entities in order to reduce risks to financial stability. Recommendations may be public or confidential. They are legally unenforceable.
The CNB has a set of macroprudential instruments that it applies mostly to the banking sector. Macroprudential policy also covers non-banking components of the financial system. The CNB assesses the activities and position of non-bank financial institutions on an ongoing basis and, where necessary, responds to changes in systemic risk and resilience. The CNB also sees a need for a debate about the medium-term systemic risks associated with pension management companies, management companies, pension funds and investment funds. In this area, the CNB supports better management of investment and liquidity risks by investment and pension management funds, management companies and pension management companies, transparency towards holders of fund units regarding risk perceptions, and, last but not least, financial and investment literacy of households (CNB, 2020[1]).
References
[1] CNB (2020), The CNB’s Macroprudential Policy Strategy, https://www.cnb.cz/export/sites/cnb/en/financial-stability/.galleries/macroprudential_policy/cnb_macroprudential_policy_strategy.pdf (accessed on 6 July 2022).
[2] CNB (2014), Financial Market Supervision Report 2013, https://www.cnb.cz/export/sites/cnb/en/supervision-financial-market/.galleries/aggregate_information_financial_sector/financial_market_supervision_reports/download/fms_2013.pdf (accessed on 6 July 2022).