Featured Product

    ESRB on Methodologies for Assessment of CRE Vulnerabilities

    December 17, 2019

    The ESRB Working Group on Real Estate Methodologies (WG-REM) published a report that provides concrete guidance for a consistent assessment of systemic risks that may stem from developments in the commercial real estate (CRE) markets and the related macro-prudential policies. Following finalization of the methodological framework developed for residential real estate (RRE) and in line with its mandate, the WG-REM explored any scope for using an equivalent approach to assess CRE systemic risks and macro-prudential measures activated to mitigate them. To this end, in view of the severe data gaps that continue to hinder effective analysis of CRE developments in European countries (Section 2 of this report), the WG-REM adopted a pragmatic two-step strategy.

    First, it developed a range of operative guidance for assessing CRE vulnerabilities and related policies. This conceptually resembles the RRE framework, although it takes into account the greater heterogeneity and deeper complexities in CRE due to related wider variety of operators, greater exposure to foreign investors, and larger set of financing options. Second, the WG-REM has provided a body of advanced considerations that are intended to give practical guidance for assessing CRE vulnerabilities and related macro-prudential policies until the forthcoming statistical progress has been achieved. This contingent guidance is expected to be especially relevant in countries where data gaps have been particularly severe. 

    The full-fledged framework for the assessment of CRE-related systemic risks and policy responses presented in this report takes an ideally medium-term perspective. This is due to the severe data gaps affecting the ability to monitor and explain CRE market trends and their interactions with the financial system and, to a larger extent, the general macroeconomic outlook. The framework includes some data points that will conceivably become available in the near future, when statistical initiatives already launched at both the country and the EU levels have been completed. The report also states that AnaCredit data may significantly improve the risk assessment for CRE, at least with regard to interactions with credit markets.; however, the data will only be available for euro area countries The CRE aggregate derived from FINREP does not include rental housing and, therefore, does not fit the updated ESRB/2019/3 definition. For this reason, even though FINREP data are available for all countries, the indicator is an approximation and should be interpreted with caution. This will probably be remedied by data from AnaCredit, which could be available from mid-2020.

    AnaCredit data will markedly improve the surveillance of banks’ exposure to the CRE market. This can be augmented by data available at the national level, to allow comparable indicators to be compiled based on the guidance provided by the Real Estate Task Force of the European System of Central Banks. However, AnaCredit currently still lacks certain indicators that might be useful for the identification of risk. These are property type, property use, information on covenants, and rental income or cash flows. The Real Estate Task Force may suggest including these indicators in the next major revision of AnaCredit. Moreover, to capture the full link between the financial sector and CRE, the banking-related scope of AnaCredit will need to be broadened to encompass all lenders and investors (nonbanks such as insurers, pension funds, and investment funds).

    Nevertheless, the WG-REM offers a body of advanced considerations that aim to provide practical guidance until statistical progress has been achieved, especially in countries where data gaps have been particularly severe to date. This is to avoid any unwarranted further postponement of the regular monitoring of CRE developments in EU that are needed for timely risk detection and policy reaction. An important policy prescription still applies, that is, the extra effort should be made to achieve the urgent expected statistical progress, either through official or experimental projects. This outcome is necessary for the assessment framework presented in this report to become fully operative.


    Related Link: Report (PDF)


    Keywords: Europe, EU, Banking, Systemic Risk, Macro-Prudential Policy, Commercial Real Estate, Residential Real Estate, AnaCredit, FINREP, ESRB

    Featured Experts
    Related Articles

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    MFSA Sets Out Supervisory Priorities, Issues Reporting Updates

    The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023

    March 02, 2023 WebPage Regulatory News

    German Regulators Issue Multiple Reporting Updates for Banks

    Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8806