Hearing before the Committee on Economic and Monetary Affairs of the European Parliament

Introductory statement by Mario Draghi, Chair of the ESRB

Brussels, 23 September 2019

It is a pleasure for me to address this Committee for the second time this year. This is my last appearance at the European Parliament in my capacity as Chair of the European Systemic Risk Board (ESRB) but the first in the term of the ninth European Parliament. Last time I spoke before this Committee as ESRB Chair, I discussed what had been achieved in the field of macroprudential policy and the main challenges that lay ahead.

Today I would like to touch on the residential real estate sector, which the ESRB has analysed as part of its regular monitoring of its member countries. As we have discussed several times before in this Committee, developments in the residential real estate sector can have significant implications for financial stability and the real economy. Ensuring that the Committee is aware of the ESRB’s assessment is thus an important part of the ESRB’s accountability towards the European Parliament.

The ESRB was established to monitor risks to EU financial stability and bring about adequate policy responses. It was designed to exercise peer pressure and work against inaction bias. One way in which it does this is by issuing warnings, if it needs to flag vulnerabilities and trends that have the potential to disrupt financial stability. It can also go one step further and issue recommendations, which not only flag risks but also point to necessary remedial action.

On the basis of its forward-looking analysis of the residential real estate sector, the ESRB is today publishing five warnings[1] and six recommendations[2] related to medium-term vulnerabilities in that sector. The methodology and analysis underpinning our policy decisions is documented in detail in three accompanying reports.

The warnings and recommendations are country-specific and reflect the availability of instruments in the individual countries, their application and the various constellations of vulnerabilities. The identified vulnerabilities may relate to household indebtedness, housing lending growth, lending standards or real estate price developments. Macroprudential instruments, if available under the legal framework and if correctly applied, can be used to attenuate these vulnerabilities. Our analysis shows that in some countries authorities are hampered by a lack of borrower-based instruments, while other countries would benefit from making active use of the available tools.

I would like to conclude by noting that, since my last appearance here, the ESRB has published its annual report, which describes our risk assessment and contributions to the macroprudential policy framework over the period from 1 April 2018 to 31 March 2019. I would also like to briefly highlight ongoing ESRB work at the technical level, which will soon be discussed by the General Board. In three days’ time, we will exchange views on the macroprudential use of margins and haircuts, which is an important part of our strategy for expanding the macroprudential toolkit. We will also look at how to ensure a swift exchange of information between home and host supervisors to permit a macroprudential perspective on the activities of branches. The ESRB is also continuing to assess the implications that cyber risk might have for financial stability. More generally, we will continue to reflect on the changing structure of financial system, the role of stress testing and the experience gained so far with macroprudential policies. All three topics will be among those explored at our fourth annual conference, which starts on Thursday, and I warmly invite representatives from this Committee to join us in Frankfurt for the occasion.

Thank you for your attention. I am now available for questions.

[1]The warnings are issued to the Czech Republic, Germany, France, Iceland and Norway.
[2]Belgium, Denmark, Finland, Luxembourg, the Netherlands and Sweden, which already received ESRB warnings about such vulnerabilities in 2016, are now receiving recommendations to take necessary remedial action to address the identified sources of systemic risk.