ESRB Opinion on DNB Proposal for Stricter National Measure Under CRR
ESRB published an opinion, along with an assessment note, regarding the DNB notification about the intention to impose a stricter national measure on institutions, based on Article 458 of the Capital Requirements Regulation (CRR). The proposed measure is intended for credit institutions that use the internal ratings-based (IRB) approach to calculate regulatory capital. DNB is proposing to impose a minimum average risk-weight for IRB banks’ portfolio of exposures to natural persons secured by mortgages on residential property located in the Netherlands. Loans covered by the National Mortgage Guarantee scheme will be exempt from the measure.
DNB had notified ESRB, on January 08, 2020, about its intention to adopt this stricter national measure. Dutch banks are heavily exposed to high loan-to-value (LTV) loans, which pose significant systemic credit risk. High LTV loans are more likely to have negative equity following a contraction in the housing market. The proposed measure reflects this negative externality, as the additional capital to be held for mortgage exposures will increase with the share of high LTV loans. The calibration of the measure is intended to increase the average risk-weights of IRB banks by 3 to 4 percentage points (from 11% to between 14% and 15%), resulting in a EUR 3 billion increase in the total amount of required capital.
ESRB highlights that the aim of the proposed measure is to mitigate an increase in systemic risk with respect to developments in the housing market. Micro-prudential supervision can contain, but not completely remove, concerns about low risk-weights during a macroeconomic expansion. The aim of micro-prudential supervision regarding internal models is to ensure compliance with regulatory requirements and the reduction of inconsistencies and unwarranted variability of risk-weights across institutions, rather than to target specific (minimum) levels of risk-weights required for macro-prudential reasons. ESRB believes that the vulnerabilities stemming from the residential real estate market, notably those of a systemic nature, have not been fully reflected in the application of risk-weights for mortgage loans in the Netherlands. Therefore, the proposed measure, which imposes a floor on risk-weights linked to LTV ratios, contributes to increase the resilience of Dutch banks to a possible materialization of systemic risk in the real estate market. Therefore, ESRB is of the view that the measure should be supported.
Related Links
Keywords: Europe, EU, Netherlands, Banking, CRR, IRB, Systemic Risk, Internal Ratings Based, LTV, Residential Real Estate, Regulatory Capital, DNB, ESRB
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Previous Article
FASB Issues Guidance to Assist in Transition to New Reference RatesRelated Articles
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA Publishes Report on Asset Encumbrance of Banks in EU
EBA published the annual report on asset encumbrance of banks in EU.
MAS Revises Guidelines on Technology Risk Management
MAS revised the guidelines that address technology and cyber risks of financial institutions, in an environment of growing use of cloud technologies, application programming interfaces, and rapid software development.
US Agencies Publish Updates for Call Reports, FFIEC 101, and FR Y-9C
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA Proposes Guidelines for Establishing Intermediate Parent Entities
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.