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
Featured Experts
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Related Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.