Banking Regulation - Regulatory Capital And Liquidity

4.1 How are banks typically funded in your jurisdiction?

Consistent with other Euro-area banks following the 2008 financial crisis, customer deposits represent the single largest source of funding. In 2016 deposits owed to customers represented 45.82% of total liabilities; this figure rose steadily to 48.84% in 2018. These deposits are sourced from non-financial and financial undertakings, private and/or retail customers, and the current accounts of investment funds. The second major area of funding for banks in Luxembourg is interbank liabilities, which represented 31.08% of total liabilities in 2018.

4.2 What minimum capital requirements apply to banks in your jurisdiction?

Credit institutions must have a share capital of at least €8.7 million which is subscribed, fully paid up and compliant with the relevant provisions of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms, as amended (CRR) (Articles 28 and, where applicable, 29). They are also subject to specific rules on capital adequacy and must maintain a number of capital buffers.

Under the CRR, credit institutions must maintain, at all times, a total capital ratio (ie, the own funds of the credit institution expressed as a percentage of the total risk exposure amount, as calculated in accordance with the relevant provisions of the CRR) of 8%. The capital ratio must be composed of 4.5% of Common Equity Tier 1 capital, 1.5% of Additional Tier 1 capital and 2% of Tier 2 capital (each as defined under the CRR).

Under the Law of 5 April 1993 on the financial sector, as amended, credit institutions must maintain a capital conservation buffer composed of Common Equity Tier 1 capital equal to 2.5% of their total risk exposure amount calculated in accordance with the CRR, and an institution-specific countercyclical capital buffer composed of Common Equity Tier 1 capital which is equivalent to their total risk exposure amount calculated in accordance with the CRR multiplied by the weighted average of the countercyclical buffer rates. The CSSF is responsible for setting the countercyclical buffer rates applicable in Luxembourg. As per...