EN ECB-PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 7 April 2017  
on the amendment of Financial Supervisory Law 
 (CON/2017/11) 
 
Introduction and legal basis 
On 15 February 2017 the European Central Bank (ECB) received a request from the German Federal 
Ministry of Finance for an opinion on an Act on the Amendment of Financial Supervisory Law in connection with establishing the legal foundations for being able to take measures in the future when 
deemed necessary in response to threats to the stability of the financial system and for amending the 
transposition of the Directive on credit agreements for consumers relating to residential immovable 
property (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC
1, as 
the draft law relates to (1) rules applicable to financial institutions insofar as they materially influence the 
stability of financial institutions  and markets and (2) the specific ta sks conferred upon the ECB concerning 
the prudential supervision of credit institutions under Article 127(6) of the Treaty. In accordance with the 
first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion. 
 1. Purpose of the draft law 
1.1 According to its explanatory memorandum, the draft law is intended to (1) implement 
recommendations of the German Financial Stability Council aiming to create the legal basis for 
macro-prudential tools for regulating the granting of  new loans for the construction or purchase of 
residential immovable property, (2) increase legal certainty with respect to the assessment of the creditworthiness of mortgage borrowers in connection with the transposition of the Directive (EU) 
2014/17 of the European Parliament and of the Council
2, and (3) transpose certain information 
duties required by the Benchmark-Regulation (EU) 2016/1011.  
1.2 In order to counteract potential risks to the st ability of the national financial system, the draft law 
sets out the legal basis for instruments that would enable the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsau fsicht – BaFin) to impose certain minimum 
                                                 
1 Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
2  Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for 
consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34).
 
ECB-PUBLIC  
2 standards upon lenders in connection with the granting of new loans for the construction or 
acquisition of residential property, such as (1) an upper limit for the ratio between the sum of all debt resulting from a residential property financing transaction and the market value of the 
residential property (loan-to-value ratio – LTV), (2) a maximum time limit for the repayment of certain parts of a loan, or, in the case of loans due for repayment at the end of their term, a 
maximum maturity (amortisation requirement), (3) an upper limit upon the total servicing of all debts 
in proportion to the borrower’s income (debt-service-to-income – DSTI) or, where the borrower is 
not a natural person (e.g., a company), a lower limit upon the proportion of the borrower’s inflows of 
funds to the borrower’s debt servicing obligation within a specific time frame (debt-service coverage ratio – DSCR) and (4) an upper limit for the ratio of overall indebtedness to the borrower’s income 
(debt-to-income ratio – DTI).  
1.3 In the event that these macroprudential in struments should be applied for financial stability 
purposes, BaFin shall also specify (1) which proportion of a credit institution’s new lending 
business for residential property within a specific period shall not be subject to the restrictions that have been established (free quota) and (2) the loan amount up to which one or more restrictions do 
not apply ( de minimis  threshold), with an upper limit for the share of the loan volume that may be 
issued under the de minims  threshold in relation to the total amount of new residential immovable 
property lending business during a specific period. 
1.4 Exemptions apply to the issuing of loans (1) for the expansion, modification or renovation of 
residential property already owned by the borrower, (2) for measures, for which social housing 
funding under the Housing Allowance Act ( Wohnraumförderungsgesetz ) or in accordance with the 
relevant provisions under the regional law of the Federal State concerned has been approved, (3) 
for projects, in respect of which loans have already been granted to the same borrower prior to the restrictions referred to in paragraph 1.1 being established, insofar as the total amounts of such new 
loans does not exceed the amount remaining after amortisations of the previous loan financing granted prior to the restrictions being established (follow-up financing). 
1.5 In order to avoid regulatory arbitrage and distortions of competition, the scope of the draft law 
extends to all commercial lenders active in the re sidential property market, i.e. credit institutions, 
insurance undertakings and investment companies. 
1.6 The Federal Ministry of Finance is empowered to issue a regulation for each of these commercial 
lenders’ sectors that specifies (including, but not limited to) (1) the definitions of loans and 
residential immovable property, including loans that will not be subject to the instruments, (2) the upper limits, time periods and the calculation of ra tios and other relevant parameters, (3) the free 
quotas and the de minimis  threshold, (4) the regular review of the measures, and (5) details 
regarding the collaboration between BaFin and Deutsche Bundesbank in connection with the application of this provision. 
1.7 The Federal Ministries of Finance and Justice ar e also empowered to issue a regulation containing 
guidelines on the criteria and methods to assess the creditworthiness of residential immovable 
property loans which contains in particular (1) factors relevant for the assessment whether 
borrowers are likely to meet their obligations under a loan agreement and (2) applicable 
procedures for the collection and verification of information.  
ECB-PUBLIC  
3 2. Observations 
2.1 The ECB welcomes the intention to increase legal certainty with respect to the assessment of the 
creditworthiness of mortgage borrowers in order to avoid unjustified restrictions in the granting of 
mortgage loans in Germany. 
2.2 The ECB also welcomes that recommendations made by the German Financial Stability Council 
aiming to create macro-prudential tools regarding the granting of new loans for the construction or 
purchase of residential property will be implemented by amending the relevant financial supervisory 
legislation. Imbalances in the residential immovable property sector that could result from 
overvaluation of residential property accompanied by excessive credit provision can have significant negative implications for financial stability and the real economy. Against this 
background, the core objectives of the draft law seem appropriate, namely to create instruments that enable the BaFin to impose certain minimum standards upon lenders in connection with the 
issuance of new residential mortgage loans, with a view to strengthening the resilience of the 
financial system and to counteracting the cyclical build-up of systemic risks, when deemed necessary.
3 The objectives are also in line with the principles set out in the European Systemic 
Risk Board’s Recommendation on intermediate objectives and instruments of macro-prudential 
policy4, in particular with regard to the objective to mitigate and prevent excessive credit growth 
and leverage.  
2.3 From a financial stability perspective, the EC B welcomes the implement ation of a legislative 
framework for borrower-based measures in all euro area countries.5 The measures contained in 
the draft law enabling BaFin to create macro-prudential tools to counteract potential risks to the stability of the national financial system seem appr opriate to the extent that they aim at promoting 
responsible borrowing and lending, enforcing market discipline, reducing credit risk and increasing the transparency of credit institutions’ activities. The ECB understands that in line with 
recommendation of the German Financial Stability Co uncil, the draft law establishes a legal basis 
for imposing certain minimum standards upon lenders in connection with the granting of new loans. 
The four different instruments envisaged by the draft law will allow the BaFin to either activate only 
one, a combination of or all instruments depending on the circumstances jeopardising financial 
stability. This enables the BaFin to respond in a flexible and proportionate way in relation to 
potential risks to financial stability. A thorou gh quantitative impact assessment is, however, 
important to verify the effect and appropriateness of the draft law, as well as a regular review of the 
DSTI, DSCR, DTI and LTV ratios to take into  account the implications of changes in 
macroeconomic and financial conditions. The scale of exemptions from the scope or specific 
provisions should be proportionate to the overall objective to be achieved, which is to curb 
excessive lending for the construction and purchase of residential property and prevent over-indebtedness
 6 
                                                 
3  See also paragraph 2.1 of Opinion CON/2016/18 on mortgage amortisation requirements. 
4  Recommendation of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments 
of macro-prudential policy (ESRB/2013/1) (OJ C 170, 15.6.2013, p. 1). 
5  See also “Governing Council statement on Macroprudential Policies” of 15 December 2016. 
6  See paragraph 2 of Opinion CON/2016/8.  
ECB-PUBLIC  
4 2.4 The draft law requires the BaFin to inform the EC B of its intention to issue a decision of general 
application ( Allgemeinverfügung ), specifying the macroprudential instruments referred to in 
paragraph 1.1. In addition, the ECB expects th e Ministry of Finance to consult the ECB in 
accordance with Article 127(4) of the Treaty on a draft regulation addressing the matters referred to in paragraph 1.6 above, and the Federal Ministries of Finance and Justice will inform the ECB of 
their intention to issue a regulation on the criteria and methods to assess the creditworthiness of 
residential immovable property loans, as referred to in paragraph 1.7 above.  
2.5 In view of the existing framework on the collec tion of financial data relevant e.g. for consumer 
lending, and in the absence of a targeted legal provision, there is a need to fully ensure the availability of harmonised data on all types of relevant commercial lenders whose lending for the 
construction or purchase of residential property is subject to the instruments when activated, e.g. for impact assessment purposes.  
2.6 In particular with regard to setting the ratios specified in paragraph 1.2 above, the decision of 
general application ( Allgemeinverfügung ) should be simple, easily applicable by both commercial 
lenders and borrowers and easy to understand. These criteria should also be ensured in relation to 
potential regional limitations. 
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 7 April 2017.  
[signed ] 
 The President of the ECB 
Mario DRAGHI