ECB published an opinion (CON/2020/1) on measures limiting macro-prudential risks in the residential property loans. The opinion was issued in response to a request from the German Ministry of Finance for an opinion on a draft regulation on the implementation of measures to limit macro-prudential risks in the residential property construction and the acquisition loan sector (draft regulation). The draft regulation sets out detailed rules specifying new measures available to BaFin to impose certain minimum standards on lenders to limit macro-prudential risks from residential property construction or acquisition loans, including provisions on cooperation between BaFin and Bundesbank in the adoption of these measures.
The draft regulation aims to provide commercial lenders with legal certainty in relation to these new measures and the opportunity to prepare for their application, irrespective of which instruments are applied in the future. Regarding cooperation between BaFin and Bundesbank, the draft regulation provides that Bundesbank must notify BaFin immediately if it concludes on the basis of its financial stability analyses that the functioning of the financial system may be disrupted or financial stability may be jeopardized due to a systemic risk in the residential property construction or acquisition loan sector. In light of this notification and/or its own observations, BaFin may decide to draft a general administrative order containing specific measures.
ECB welcomes this increase in legal certainty with respect to possible restrictions imposed on lenders in connection with the granting of new loans for the construction or acquisition of residential property. From a financial stability perspective, ECB welcomes the implementation of a legislative framework for borrower-based measures in all euro area countries. The measures contained in the draft regulation enabling BaFin to create macro-prudential tools to counteract potential risks to the stability of the national financial system seem appropriate to the extent that they aim to promote responsible borrowing and lending, enforce market discipline, reduce credit risk, and increase the transparency of activities of credit institutions.
A thorough quantitative impact assessment is, however, important to verify the effect and appropriateness of the draft law as well as a regular review of the loan-to-value ratio to take into account the implications of changes in macroeconomic and financial conditions. ECB welcomes the role that is assigned to Bundesbank under the draft regulation. Bundesbank is well-positioned to provide data and expertise in the sector of residential property loans. The draft law does not confer genuinely new tasks on Bundesbank, but rather specifies certain new macro-prudential tools that Bundesbank may use when discharging its macro-prudential responsibilities.
Related Link: Opinion (PDF)
Keywords: Europe, EU, Banking, Macro-Prudential Tools, Systemic Risk, Credit Risk, Bundesbank, Residential Real Estate, BaFin, ECB
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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