Opinion of the European Central Bank of 7 April 2017 on the amendment of Financial Supervisory Law (CON/2017/11)
Date: 2017-04-07
Institutions: European Central Bank
Subjects: Germany, banking supervision, financial solvency, financial stability, indebtedness, national law, real estate credit

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/EC1, 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 tasks 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  Council2,  and  (3)  transpose  certain  information 

duties required by the Benchmark-Regulation (EU) 2016/1011.  

1.2 

In  order  to  counteract  potential  risks to  the  stability  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  Finanzdienstleistungsaufsicht  –  BaFin)  to  impose  certain  minimum 

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2  

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). 

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). 

 
 
 
 
                                                 
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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  instruments  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  residential  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 ratios 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 are 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.  

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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  ECB  welcomes  the  implementation  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 appropriate 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 Council, 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  thorough  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  
4  

5  
6  

See also paragraph 2.1 of Opinion CON/2016/18 on mortgage amortisation requirements. 
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). 
See also “Governing Council statement on Macroprudential Policies” of 15 December 2016. 

See paragraph 2 of Opinion CON/2016/8.  

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2.4  The  draft  law  requires  the  BaFin  to  inform  the  ECB 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  the  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  collection  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 

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