Eighth meeting of the Financial Market Stability Board

In its eighth meeting on June 1, 2016, the Financial Market Stability Board (FMSB) recommended creating the legal basis for new macroprudential instruments relating to real estate loans. Moreover, the FMSB confirmed its recommendation to maintain the countercyclical capital buffer rate at 0% of risk-weighted assets. In addition, the FMSB discussed the reciprocity of macroprudential measures, the prevalent low interest rate environment and the resolution of HETA ASSET RESOLUTION AG.

New macroprudential instruments related to real estate loans

As real estate prices have been increasing strongly in some parts of Austria, the FMSB has stepped up its risk monitoring with regard to real estate funding[1]. While an overvaluation of real estate prices has been identified above all in Vienna, past credit growth has not been found to be excessive even when property price growth was steepest. Nevertheless, housing loans are the credit segment that has been posting the highest growth rates in Austria since the financial crisis, even though such pace of growth is still moderate in comparison with the years leading up to the financial crisis. With interest rates remaining persistently low and real estate prices continuing to rise, one cannot rule out structural change which might go hand in hand with unsustainable lending and an easing of credit standards. Against this backdrop, the FMSB considers it necessary to take preventive action and expand the macroprudential toolbox by providing the possibility of imposing limits on the loan-to-value ratio, the debt-to-income ratio or the debt service-to-income ratio in new lending. Such an expansion is meant to ensure that the FMSB can act on systemic risks arising from a real estate price boom. The Federal Minister of Finance will be informed to this effect.

Recommendation for the activation of the countercyclical capital buffer

The FMSB recommends that the Financial Market Authority (FMA) maintain the countercyclical capital buffer rate of 0% of risk-weighted assets also in the fourth quarter, i.e. as of October 1, 2016. Current quantitative and qualitative analyses do not point to excessive credit growth in Austria. Total outstanding loans relative to GDP continue to considerably lag behind their long-term trend.

Information on the FMSB

The FMSB, which became operational in 2014, works toward strengthening financial stability. Its members are representatives of the Austrian Federal Ministry of Finance, the Fiscal Advisory Council, the Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB). The FMSB may issue recommendations to the FMA and provide risk warnings.

 

[1] See the press releases about the fifth, sixth and seventh meeting of the FMSB.