ECB Publishes Opinion on Measures to Limit Macro-Prudential Risks
ECB published an opinion (CON/2020/1) on measures limiting macro-prudential risks in the residential property loans. The opinion was issued in response to a request from the German Ministry of Finance for an opinion on a draft regulation on the implementation of measures to limit macro-prudential risks in the residential property construction and the acquisition loan sector (draft regulation). The draft regulation sets out detailed rules specifying new measures available to BaFin to impose certain minimum standards on lenders to limit macro-prudential risks from residential property construction or acquisition loans, including provisions on cooperation between BaFin and Bundesbank in the adoption of these measures.
The draft regulation aims to provide commercial lenders with legal certainty in relation to these new measures and the opportunity to prepare for their application, irrespective of which instruments are applied in the future. Regarding cooperation between BaFin and Bundesbank, the draft regulation provides that Bundesbank must notify BaFin immediately if it concludes on the basis of its financial stability analyses that the functioning of the financial system may be disrupted or financial stability may be jeopardized due to a systemic risk in the residential property construction or acquisition loan sector. In light of this notification and/or its own observations, BaFin may decide to draft a general administrative order containing specific measures.
ECB welcomes this increase in legal certainty with respect to possible restrictions imposed on lenders in connection with the granting of new loans for the construction or acquisition of residential property. From a financial stability perspective, ECB welcomes the implementation of a legislative framework for borrower-based measures in all euro area countries. The measures contained in the draft regulation enabling BaFin to create macro-prudential tools to counteract potential risks to the stability of the national financial system seem appropriate to the extent that they aim to promote responsible borrowing and lending, enforce market discipline, reduce credit risk, and increase the transparency of activities of credit institutions.
A thorough quantitative impact assessment is, however, important to verify the effect and appropriateness of the draft law as well as a regular review of the loan-to-value ratio to take into account the implications of changes in macroeconomic and financial conditions. ECB welcomes the role that is assigned to Bundesbank under the draft regulation. Bundesbank is well-positioned to provide data and expertise in the sector of residential property loans. The draft law does not confer genuinely new tasks on Bundesbank, but rather specifies certain new macro-prudential tools that Bundesbank may use when discharging its macro-prudential responsibilities.
Related Link: Opinion (PDF)
Keywords: Europe, EU, Banking, Macro-Prudential Tools, Systemic Risk, Credit Risk, Bundesbank, Residential Real Estate, BaFin, ECB
Previous Article
EBA Publishes Risk Dashboard for Third Quarter of 2019Related Articles
HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
EBA Guide to Monitor Threshold for Intermediate Parent Undertakings
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
ESMA Group Issues Recommendations on RFR Switch in Interdealer Market
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
ECB Study Assesses Impact of Basel III Finalization Package
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
PRA Updates Remuneration Policy Statement Templates and Tables
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.
