Featured Product

    ESRB Opinion on DNB Proposal for Stricter National Measure Under CRR

    March 11, 2020

    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
    Related Articles
    News

    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.

    January 19, 2021 WebPage Regulatory News
    News

    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.

    January 19, 2021 WebPage Regulatory News
    News

    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.

    January 18, 2021 WebPage Regulatory News
    News

    EBA Publishes Report on Asset Encumbrance of Banks in EU

    EBA published the annual report on asset encumbrance of banks in EU.

    January 18, 2021 WebPage Regulatory News
    News

    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.

    January 18, 2021 WebPage Regulatory News
    News

    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.

    January 15, 2021 WebPage Regulatory News
    News

    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.

    January 15, 2021 WebPage Regulatory News
    News

    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.

    January 14, 2021 WebPage Regulatory News
    News

    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.

    January 14, 2021 WebPage Regulatory News
    News

    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.

    January 14, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6462