Cristian Perales
- 27 June 2024
- OCCASIONAL PAPER SERIES - No. 352Details
- Abstract
- The 2019 revision to the Capital Requirements Directive allowed the systemic risk buffer to be applied on a sectoral basis in the European Union. Since then an increasing number of countries have implemented the new tool, primarily to address vulnerabilities in the residential real estate sector. To inform and foster a consistent understanding and application of the buffer, this paper proposes two specific methodologies. First, an indicator-based approach which provides an aggregate measure of cyclical vulnerabilities in the residential real estate sector and can signal a potential need to activate a sectoral buffer to address them. Second, a model-based approach following a stress test rationale simulating mortgage loan losses under adverse conditions, which can be used as a starting point for calibrating a sectoral buffer. Besides these methodological contributions, the paper conceptually discusses the interaction between the sectoral buffer and other prudential requirements and instruments, ex ante and ex post policy impact assessment, and factors guiding the possible release of the buffer. Finally, the paper considers possible future applications of sectoral buffer requirements for other types of sectoral vulnerabilities, for example in relation to commercial real estate, exposures to non-financial corporations or climate-related risks.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 3 July 2023
- MACROPRUDENTIAL BULLETIN - FOCUS - No. 22Details
- Abstract
- Long-term trends in loan-to-value (LTV), debt-to-income (DTI) and debt-service-to-income (DSTI) ratios started to reverse in 2022. Higher interest rates in combination with elevated house prices are pushing up servicing costs for mortgages, resulting in higher shares of new loans with DSTIs over 30%. In countries with regulatory caps on monthly mortgage repayment ratios, an increasing share of new loans have DSTIs close to the limits. However, banks are not making full use of the flexibility allowed to them to lend above the DSTI limits, suggesting the measures in place are not excessively constraining lending.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G51 : Financial Economics
R30 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→General
- 10 October 2022
- MACROPRUDENTIAL BULLETIN - ARTICLE - No. 19Details
- Abstract
- Understanding the drivers for residential real estate (RRE) price developments, measuring house price overvaluation, monitoring trends in bank lending and borrowers’ creditworthiness is important for assessing RRE risks and informing policy responses. The ECB uses a comprehensive monitoring framework for regularly assessing RRE vulnerabilities comprising a series of core risk indicators complemented by a broad set of analytical tools. This article describes some of these tools to explain how they are employed in risk analysis.
- JEL Code
- R31 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→Housing Supply and Markets
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G51 : Financial Economics
- 9 August 2022
- WORKING PAPER SERIES - No. 2702Details
- Abstract
- Macroprudential policies should strengthen the banking sector throughout the financial cycle. However, while bank credit growth is used to capture cyclical exuberance and calibrate buffer requirements, it depends on potentially heterogeneous dynamics on the borrower and lender side. By decomposing credit growth into a common component and components capturing heterogeneity in supply and demand à la Amiti and Weinstein, 2018 applied on the euro area credit register ("AnaCredit"), we can inform the policy debates in two ways. Ex ante, we introduce a framework mapping the decomposition to different types of macroprudential instruments, specifically broad vs. targeted measures. Ex post, we also show that the resulting decomposition can be used to assess the effectiveness of adopted measures on credit supply or demand. We find evidence that buffer releases and credit guarantees increased bank credit supply during the COVID-19 pandemic and interacted positively with banks' profitability.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 24 May 2018
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2018Details
- Abstract
- The cost of subordinated bank debt in the euro area is low and may be susceptible to repricing. Euro area bank bond yields and spreads have narrowed significantly since mid-2016, reaching levels last observed prior to the global financial crisis. The reductions have been particularly noticeable in the markets for subordinated bonds.57 Against this background, this box first evaluates whether there are indications that the prices of these bonds may be vulnerable to a correction. It then assesses the potential financial implications stemming from a spread reversal in euro area subordinated bank bonds. The box focuses in particular on the holders of these instruments and examines the sectors that may be particularly vulnerable to a turnaround in this market.
- 2 February 2017
- WORKING PAPER SERIES - No. 2010Details
- Abstract
- We present a tractable framework to assess the systemic implications of bail-in. To this end, we construct a multi-layered network model where each layer represents the securities cross holdings of a specific seniority among the largest euro area banking groups. On this basis, the bail-in of a bank can be simulated to identify the direct contagion risk to the other banks in the network. We find that there is no direct contagion to creditor banks. Spill-overs also tend to be small due to low levels of securities cross-holdings in the interbank network. We also quantify the impact of a bail-in on the different liability holders. In the baseline scenario, shareholders and subordinated creditors are always affected by the bail-in, senior unsecured creditors in 75% of the cases. Finally, we compute the effect of the bail-in on the network topology in each layer. We find that a bail-in significantly reshapes interbank linkages within specific seniority layers.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
C63 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computational Techniques, Simulation Modeling
- 24 May 2016
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2016Details
- Abstract
- The new bail-in tool in the EU bank resolution toolkit is an important step forward to safeguard financial stability in Europe, notably in relation to mitigating moral hazard and other problems inherent in a strong reliance on bailouts. At the same time, it is important to understand the potential contagion channels in the financial system following a bail-in and prior to resolution in order to assess potential systemic implications of the use of the bail-in tool. This special feature outlines salient features of the new requirements and then presents a multi-layered network model of banks’ bail-inable securities that could help in gauging potential contagion risk and, prior to a resolution, identifying mitigating measures to avoid systemic implications.
- JEL Code
- G00 : Financial Economics→General→General