ESRB Supports Extension of Macro-Prudential Measure by NBB
ESRB published an opinion assessing the decision of NBB to extend the application period for a stricter measure on residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR). The measure imposes a macro-prudential risk-weight add-on for all domestic credit institutions applying the internal ratings-based approach, whose retail exposures are secured by residential immovable property located in Belgium. NBB has proposed to extend this measure by one year, until April 30, 2022. ESRB supports the intention of NBB to extend the application period of this macro-prudential measure and to keep risk-weights for exposures of internal ratings-based banks to the Belgian residential real estate sector at a higher level.
The measure consists of two components. The first component imposes a 5 percentage point risk-weight add-on for exposures of internal ratings-based banks to the Belgian mortgage loans. The second, more targeted, component further increases the risk-weights based on risk profile of the mortgage portfolio of the internal ratings-based banks, by applying a multiplier of 1.33 to the micro-prudential risk-weight of the residential mortgage loan portfolio. This measure was first activated on May 01, 2018 and, in line with Article 458 of the CRR, remained applicable for two years, until April 30, 2020. Due to the continuing systemic risks in the financial system, on May 01, 2020, the measure was extended for one year, until April 30, 2021. The current extension of the measure is intended to apply from May 01, 2021.
The primary aim of the proposed extension of the measure is to ensure that Belgian internal ratings-based banks are resilient to residential real estate risks. ESRB assessment focuses on the net benefits of the national measure in terms of maintaining financial stability. ESRB believes that the proposed extension of the measure will not have any procyclical effects on the real economy and the financial system. Although the COVID-19 pandemic has increased the probability of systemic risks materializing in the forthcoming quarters, the potential materialization of residential real estate risks is conditional on further economic impact of the pandemic. ESRB also believes that the alternative macro-prudential instruments listed in Article 458 of the CRR would not be adequate to address the identified risks. Finally, ESRB believes that the introduction of borrower-based measures through supervisory expectations from January 2020 does not constitute a reason for terminating or downwardly recalibrating the measure under Article 458 of the CRR.
Related Links
Keywords: Europe, EU, Belgium, Banking, COVID-19, CRR, Basel, Residential Real Estate, Opinion, Regulatory Capital, Credit Risk, IRB Approach, RRE, Macro-Prudential Policy, NBB, 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.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
US Agencies Amend Capital Rule to Facilitate Emergency InvestmentRelated Articles
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.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.