ESRB recommends EU-wide reciprocation of Finland’s 15% risk-weight floor on Finnish mortgage loan exposures

5 March 2018

On 8 January, the European Systemic Risk Board (ESRB) adopted a Recommendation for the EU-wide reciprocation of Finland’s 15% risk-weight floor on residential mortgage loans in Finland for banks using the internal ratings-based approach. This Recommendation was published in the Official Journal of the European Union on 3 February 2018.

Recommendation ESRB/2018/1 seeks to ensure that Finland’s 15% risk-weight floor on mortgage loan exposures applies not only to such exposures of banks authorised in Finland, but also to other EU banks’ exposures to Finland’s mortgage market through branches in that country or EU banks’ direct cross-border exposures to Finland’s mortgage market. It thereby enhances the effectiveness and consistency of macroprudential policy in the EU and contributes to a level playing field in the Single Market.

Additional information

On 23 October, Suomen Pankki requested the ESRB to recommend to other Member States the reciprocation of the 15% risk-weight floor on mortgage loan exposures that Finland requires its banks to maintain. Such a floor means that banks using the internal ratings-based approach have to apply a bank-specific floor for the average risk weight of 15%, at the portfolio level, on residential mortgage loans secured by a mortgage on housing units in Finland. After considering the cross-border implications, the General Board of the ESRB decided on 8 January 2018 to include the Finnish measure in the list of macroprudential policy measures to be reciprocated under Recommendation ESRB/2015/2.

The above ESRB Recommendation provides details of the rationale behind the reciprocation of macroprudential policy measures. In particular, in a highly integrated financial market such as exists in the EU, where financial intermediaries operate across borders, non-reciprocation could lead to macroprudential policy measures being circumvented and undermine a level playing field among financial intermediaries. For that reason, the ESRB recommends an approach that is based on two main pillars, namely:

  • a systematic assessment of the cross-border effects of macroprudential policy;
  • a coordinated policy response in the form of voluntary reciprocity for macroprudential policy measures when needed.

It is important that these pillars are implemented consistently throughout the EU.

The ESRB recommends the reciprocation of national macroprudential policy measures via amendments to the main reciprocity framework (Recommendation ESRB/2015/2). Following Recommendation ESRB/2016/3 and Recommendation ESRB/2016/4 for the reciprocation of macroprudential measures taken by the Belgian[1] and Estonian[2] authorities, respectively, Recommendation ESRB/2018/1 is the ESRB’s third Recommendation to provide for the reciprocation of a national macroprudential policy measure.

More information on the macroprudential measures that have been recommended for reciprocation by the ESRB under its reciprocity framework and their follow-up by Member States can be found on the ESRB’s webpages dedicated to reciprocation.

For media queries, please contact William Lelieveldt, tel.: +49 69 1344 7316.

[1] The Belgian measure consisted in a 5-percentage-point risk-weight add-on applied to the Belgian mortgage loan exposures of credit institutions using the internal-ratings based approach. This measure expired on 28 May 2017 and was subsequently eliminated from the list of measures recommended for reciprocation by the ESRB.

[2] The Estonian measure consisted in the application of a 1% systemic risk buffer rate to banks’ Estonian exposures.