DNB proposed a measure to impose a lower limit on the risk-weighting of mortgage loan portfolios. The proposal is to amend the regulation on specific provisions for Capital Requirements Directive and Regulation (CRD IV and CRR) in connection with the introduction of a minimum floor for the risk-weighting of loans to the private individuals covered by mortgages on real estate in the Netherlands (also known as the Risk Weighting Regulation on mortgage loans). The consultation ends on November 25, 2019. The consultation will run until November 25, 2019. This measure will come into effect in the Autumn of 2020, for a period of two years, with the final rule expected to be published in the Government Gazette.
DNB not only states that it imposes a minimum floor on the risk-weighting of the mortgage loan portfolios of banks that use internal models but also indicates how this minimum floor should be calculated. Mortgage loans that are fully or partially covered by the National Mortgage Guarantee (NHG) are exempted from the measure. As DNB implements one of the options and discretions arising from CRD IV and CRR (Article 458 of the CRR), the CRD IV and the CRR 2019 specific provisions regulations will be adjusted for this purpose. The most important reason for imposing this measure is that the risk-weights that banks use based on their internal models for their mortgage loans do not sufficiently reflect the increased systemic risk in the housing market. DNB also explained this measure in its Financial Stability Overview.
The measure is intended to strengthen the resilience of banks against a possible housing market correction. The measure is, therefore, not in addition to the new capital requirements based on the Basel 3.5 agreement, which will probably be introduced in phases from 2022 onward. It is expected that the risk-weights for mortgages as a result of the Basel 3.5 agreement will start a similar movement. As a result of this measure, the average risk weighting of mortgage loans is expected to increase from 11% to nearly 14% to 15%. According to the DNB estimates, banks that use internal risk models must jointly hold about EUR 3 billion more capital as a result of this measure. Thus, banks will be better able to cope with the consequences of a possible house price correction. With this measure, DNB also follows up on an ESRB recommendation based on the assessment of medium-term vulnerabilities in the residential real estate sector in the Netherlands.
Related Links (in Dutch)
- Press Release
- Proposed Measure
- ESRB Recommendation (PDF in English)
- Financial Stability Overview (PDF)
Comment Due Date: November 25, 2019
Keywords: Europe, Netherlands, Banking, Risk-Weight, CRR, CRD IV, Systemic Risk, Options and Discretions, Residential Real Estate, Mortgage Lending, DNB
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.
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