The sectoral systemic risk buffer: general issues and application to residential real estate-related risks

Markus Behn, Wanda Cornacchia, Marco Forletta, Barbara Jarmulska, Cristian Perales, Ellen Ryan, Diogo Serra, Eugen Tereanu, Marcello Tumino, Daniel Abreu, Francesco Ciampi, Federica Ciocchetta, Marija Drenkovska, Benedikt Fritz, Sebastian Geiger, Mariya Melnychuk, Steffen Meusel, Alexandre Reginster, Štefan Rychtárik, Ilze Vilka and Fleurilys Virel

No 352, Occasional Paper Series from European Central Bank

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 Classification: G21, G28

Keywords: banks; capital buffers; financial stability; macroprudential policy (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-rmg and nep-ure
Note: 2203070
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op352~ae1b23edf0.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2024352

Access Statistics for this paper

More papers in Occasional Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().