This translation is furnished for information purposes only. The original German text is binding in all respects.

1. How should the scope of the sectoral systemic risk buffer generally be understood?

The objective of activating the sectoral systemic risk buffer is to address all exposures collateralised by residential property located in Germany and for which that property collateral is taken into account as a deduction when determining capital requirements.
This is worded as follows in the General Administrative Act: “In accordance with section 10e (1) sentence 2 of the KWG, this capital buffer is being ordered for all exposures – or parts of exposures – to natural and legal persons for which mortgages on residential property located in Germany are taken into account as deductions when determining capital requirements.”
The sectoral systemic risk buffer does not apply if exposures are not secured by mortgages on residential property or if the collateral is not taken into account as a risk reduction when determining capital charges. Shares or units in property funds also do not fall within the scope of the sectoral systemic risk buffer.
The increased buffer requirement must be complied with directly by credit institutions located in Germany. BaFin has also requested reciprocal application of the requirement by the ESRB, with the result that it also applies to foreign institutions that operate in this area in Germany as an EU branch office or by providing cross-border services.

2. How should the scope of the sectoral systemic risk buffer be understood, specifically in the Credit Risk Standardised Approach (CRSA) and in the IRB Approach (IRBA)?

In the CRSA, the sectoral systemic risk buffer refers only to the supervisory privileged portion of the financing of residential property, i.e. to risk-weighted assets for exposures that are fully secured by residential property within the meaning of Article 125 of the CRR.

In the IRBA, the sectoral systemic risk buffer is based on the total residential property financing, i.e. on the risk-weighted assets of all exposures secured by residential property.

3. Why does the scope of the sectoral systemic risk buffer differ for the CRSA and for the IRBA?

The sectoral systemic risk buffer is generally applied to exposures or parts of exposures for which residential property collateral located in Germany is recognised as reducing risk for supervisory purposes.

However, the extent to which collateral can reduce risk depends on the approach used:

The CRSA allows real property loans to be split although a single contract is entered into (“unechtes Realkreditsplitting”). The property collateral only reduces risk in the case of fully collateralised exposures in accordance with Article 125 of the CRR (CRSA exposure class ”exposures secured by mortgages on immovable property”). On the other hand, portions of the exposure that exceed the eligible property value under Article 125 of CRR are assigned the risk weight of the actual borrower, in other words they are considered to be unsecured.

For IRBA exposures, on the other hand, splitting such real property loans although a single contract is entered into (“unechtes Realkreditsplitting”) is not generally allowed. The residential property collateral therefore reduces the risk for the entire exposure amount.

4. Does the scope of the sectoral systemic risk buffer cover only new business or the entire existing business?

The sectoral systemic risk buffer increases the buffer requirements for the total portfolio and thus extensively strengthens the resilience of banks to financial stability risks arising from the residential property market.

5. Is the sectoral systemic risk buffer applied only to residential property financing?

The sectoral systemic risk buffer addresses all financing arrangements that are exposed to risks arising from the residential property market. In this respect, the scope also includes financing arrangements that do not serve to acquire residential property if these exposures are collateralised by mortgages on residential property located in Germany and the property collateral reduces risk when determining capital requirements.

6. Does the scope of the sectoral systemic risk buffer allow any specific exemptions?

Setting the sectoral systemic risk buffer is primarily designed to make banks more resilient to negative developments in the German residential property market. In addition, the requirement it creates should be as simple and consistent as possible so as to facilitate its implementation at the institutions and its monitoring by the supervisors. BaFin considered including exemptions in the course of the decision-making process, but ultimately did not create them because of the primary objectives described above.

7. Starting on which date do the banks have to comply with the increased buffer requirement?

BaFin adopted the sectoral systemic risk buffer on 1 April 2022. To give the banks sufficient time to adapt to the new prudential supervisory requirements, they are not required to comply with the increased buffer requirement until 1 February 2023. Starting on that date, however, institutions will have to comply with the buffer requirement in full and will not be able to build it up gradually after that date.

8. If the CRSA is applied, how do you handle a situation where the technically relevant reporting item CRSA, line 40, column 220 may also contain exposures that are collateralised by residential property located abroad?

In accordance with paragraph 2 of the General Administrative Act of 30 March 2022, the capital buffer for systemic risks that is being ordered relates to exposures for which mortgages on residential property located in Germany are taken into account as deductions when determining capital requirements. If, for reasons of operational simplification, an institution does not base the calculation of the capital buffer/ratio under paragraph 1 of the General Administrative Act on individual exposures, but on aggregated reporting exposures that also contain exposures collateralised by mortgages on residential property located abroad, this will not, until further notice, generally result in any objections as it is a conservative calculation compared with the General Administrative Act from a supervisory perspective. In the event of non-compliance with the capital buffer/ratio under paragraph 1 of the General Administrative Act on the basis of aggregated reporting exposures, the institution can only argue that the amount does not fall below the capital buffer/ratio when calculated at single exposure level if it provides BaFin with the corresponding evidence at single exposure level.