Recommendation FMSB/6/2024: guidance on applying the sectoral systemic risk buffer

The Financial Market Stability Board (FMSB) recommends that the Financial Market Authority (FMA) prescribe a systemic risk buffer pursuant to Article 23e Austrian Banking Act for the subset of risk exposure amounts stemming from commercial real estate lending (sectoral systemic risk buffer) in the amount of 1% of these risk exposure amounts at consolidated and unconsolidated level as of July 1, 2025.

Already at its 41st meeting, the FMSB had found, based on an assessment by the Oesterreichische Nationalbank (OeNB) pursuant to Article 44c Austrian Banking Act, that potential losses from commercial real estate loans, in the event of a further deterioration of the economic environment, can pose an increased risk to financial stability in Austria. The OeNB will publish details on its systemic risk analysis in its Financial Stability Report on November 12, 2024.

Systemic risks from commercial real estate financing may cause additional losses for the banking system if the economic environment deteriorates further and, in particular, if a general decline in economic output were to be accompanied by a slump in real estate prices (as has been the case in other countries during real estate crises). These losses are larger than those already covered by microprudential measures and regulatory capital requirements. The FMSB recommends that the proposed measure should be calibrated so as to consider regulatory capital requirements (Pillar 1) and microprudential capital add-ons under the Supervisory Review and Evaluation Process (Pillar 2) as well as risk provisions that are already available for covering losses from commercial real estate loans.

The FMSB has discussed the available macroprudential measures and found that the sectoral systemic risk buffer is the most suitable instrument for addressing the systemic risks identified. Against the background of banks’ continued high profits, this buffer covers the relevant exposures in a way that is consistent with the systemic risk analysis and will ensure additional capital to bear any additional losses in case of a systemic crisis stemming from commercial real estate financing.

In this recommendation, commercial real estate financing refers to Austrian banks’ loans to domestic nonfinancial corporations active in the following ÖNACE 2025 sectors: F 41 Construction of buildings, F 43 Specialised construction activities and M 68 Real estate activities. The sectoral systemic risk buffer is calculated based on these loans’ risk-weighted exposure amounts. The OeNB’s analysis found that loan exposures to limited-profit developers of affordable housing do not cause any systemic risk. The FMSB therefore recommends excluding such developers from the scope of the measure.

Against the background of banking sector profitability that continues to be good, the FMSB recommends that the FMA introduce a sectoral systemic risk buffer of initially 1%. In the third quarter of 2025, when the related supervisory reporting data will become available for the first time, the FMSB will evaluate the necessity of further increases against the background of the effects the amendments to the EU Capital Requirements Regulation (CRR III¹) will have on banks’ capital requirements.

The sectoral systemic risk buffer ensures additional capital for covering losses from commercial real estate financing without limiting business activities. At a systemic level, the effects on loan pricing are expected to be low, as the majority of banks have sufficient free capital in excess of prudential requirements – even after the introduction of a sectoral systemic risk buffer. The fact that the supply of financing through the banking system is very well developed in Austria ensures that the demand for commercial real estate loans can be substituted within the banking sector.
 

¹Amended version of Regulation (EU) 575/2013.