Sectoral indicators for applying the Banco de España’s new macroprudential tools

Abstract

Since December 2021 the Banco de España has three new macroprudential tools (Circular 5/2021): the sectoral component of the countercyclical capital buffer, limits on sectoral concentration, and limits and conditions on loan origination. The new sectoral instruments will allow it to address the risks that are concentrated in specific sectors, for which the aggregate macroprudential tools would be less effective, as they are applied equally across all sectors. In order to apply these tools, any potential vulnerabilities building up in the different sectors must be previously identified by means of adequate indicators. This article analyses the battery of sectoral indicators proposed in the circular, which may be useful for activating these new macroprudential tools. Their calculation methodology is similar to that used for the general countercyclical capital buffer indicators. In addition, a study of their predictive power is conducted, which shows their efficiency in identifying risks early. According to these indicators, on data up to 2021 Q3, no warning signals have been observed suggesting that these new tools should be activated.