EBA consults on conditions for capital requirements for mortgage exposures

06 July 2015

The proposed RTSs illustrate the conditions, as well as financial stability considerations, that would ensure a harmonised approach in setting higher risk weights and higher minimum loss given default values.

Capital requirements for mortgage exposures are harmonised across the EU, for institutions applying both the Standardised Approach (SA) and the Internal Models Based (IRB) approach. For institutions applying the SA, capital requirements for mortgage exposures are regulated through the fixed risk weights of 35% for residential real estate and 50% for commercial real estate. For institutions applying the IRB approach, capital requirements are constrained by minimum values for the exposure weighted average loss given default (LGD), which is set at 10% for retail exposures secured by residential mortgages and 15% for retail exposures secured by commercial real estate.

However, competent authorities may tighten the capital requirements of these mortgage exposures by setting higher risk weights (in the SA) or setting higher minimum LGD values (in the IRB approach). When competent authorities set higher risk weights or LGD values, they should comply with the proposed conditions specified in this consultation paper.

These conditions require among others that competent authorities specify the loss expectation or LGD expectation related to one or more property segments in their immovable property markets. Furthermore, the financial stability considerations stemming from the real estate market have to be specified and forward-looking immovable property market developments should be taken into account. The CP also consults on the appropriate level of indicative benchmarks for these loss expectations when setting higher risk weights.

Comments to this consultation can be sent to the EBA by October 6th 1 pm (UK time). A public hearing will take place at the EBA premises on September 1st 2015 from 2 pm to 4 pm UK time.

Press release

Consultation paper


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