General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
November 26, 2018

ESRB published a report that analyzes the financial stability risks and vulnerabilities related to the commercial real estate markets in EU. The report studies both common trends across EU countries as well as country-specific vulnerabilities and finally discusses the possible policy instruments available to address such vulnerabilities.

The report reveals that banking sector in some countries remains highly exposed to commercial real estate, but non-banks and foreign investors also seem to be playing an increasingly important role in commercial real estate markets. Some instruments and measures, which mainly target the banking sector, are available to macro-prudential authorities seeking to address commercial real estate-related vulnerabilities. EU legislation, through the Capital Requirements Directive (CRD IV), provides instruments that can address commercial real estate-related vulnerabilities in the banking sector using capital-based measures, which include increased risk-weights, loss given default (LGD), or own fund requirements. Moreover, the Alternative Investment Fund Managers Directive (AIFMD) includes instruments that can be used to address commercial real estate-related vulnerabilities in investment funds through leverage limits as well as liquidity management tools such as the suspension of redemptions. Depending on the availability of borrower-based measures in national legislation, measures such as loan-to-value (LTV) limits and debt service coverage ratio/interest coverage ratio (DSCR/ICR) floors can also be used to address commercial real estate-related vulnerabilities.

The report highlights that capital-based measures may also be implemented to increase the resilience of the financial sector and to influence cyclical developments in commercial real estate markets. The effective regulation of risk-weights for commercial real estate exposures in many countries would require adjustments under the internal ratings-based (IRB) approach. This is because risk-weights for most of the bank exposures are based on IRB models in many countries, although most countries have implemented measures to increase commercial real estate risk-weights using the standardized approach. However, EU legislation limits countries’ possibilities with regard to correcting or increasing risk-weights for IRB banks to address commercial real estate vulnerabilities. Finally, the report recommends that, given the rising importance of non-bank and cross-border financing in commercial real estate markets, it is important to investigate whether new instruments should be made available and, in addition, implemented beyond banking.

 

Related Link: Report (PDF)

Keywords: Europe, EU, Banking, Commercial Real Estate, CRD IV, IRB Approach, Standardized Approach, Macro-prudential Measures, ESRB

Related Articles
News

ECB Updates Validation Checks and List of Identifiers Under AnaCredit

ECB updated the AnaCredit validation checks (Version 1.4) and the list of national identifiers (version 2.4) for AnaCredit reporting.

March 21, 2019 WebPage Regulatory News
News

BCBS Publishes Results of the Basel III Monitoring Exercise

BCBS published results of the Basel III monitoring exercise based on data as of June 30, 2018.

March 20, 2019 WebPage Regulatory News
News

EBA, FCA, and PRA Agree on MoU Template for Supervisory Cooperation

EBA, FCA, and PRA announced that they have agreed on a template for the Memorandum of Understanding (MoU) that sets out the expectations for supervisory cooperation and information-sharing arrangements between UK and EU/European Economic Area national authorities.

March 20, 2019 WebPage Regulatory News
News

HKMA Publishes CoP on Loss-Absorbing Capacity Requirements of Banks

HKMA issued, in relation to the Financial Institutions Resolution (Loss-Absorbing Capacity Requirements—Banking Sector) Rules (LAC Rules) a chapter of a code of practice (LAC CoP) under section 196 of the Financial Institutions Resolution Ordinance (FIRO).

March 20, 2019 WebPage Regulatory News
News

EBA Publishes Reports Monitoring the Implementation of Basel III in EU

EBA published two reports measuring the impact of implementing the final Basel III reforms and monitoring the implementation of liquidity measures in EU.

March 20, 2019 WebPage Regulatory News
News

BCBS Publishes Results of Survey on Proportionality in Bank Regulation

BCBS published a report presenting the results of a survey conducted on proportionality practices in bank regulation and supervision.

March 19, 2019 WebPage Regulatory News
News

US Agencies Adopt Interim Rule to Facilitate Transfers of Legacy Swaps

US Agencies (FCA, FDIC, FED, FHFA, and OCC) are adopting and inviting comments on an interim final rule.

March 19, 2019 WebPage Regulatory News
News

HKMA Expects Banks to Manage Risks Related to Crypto-Asset Exposures

HKMA issued a statement announcing that it expects authorized institutions to take note of the BCBS statement on crypto-assets and its prudential expectations.

March 18, 2019 WebPage Regulatory News
News

SNB Issues Form on Solvency Risk of Counterparties in Interbank Sector

SNB released form (Version 5.00) and related documentation for reporting solvency risk of counterparties in the interbank sector.

March 18, 2019 WebPage Regulatory News
News

EIOPA Requests Data on LTG Measures from Insurers Under Solvency II

EIOPA has requested the European Economic Area insurance undertakings, which are subject to Solvency II, to provide information on the long-term guarantee (LTG) measures.

March 18, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2769