Capital buffers make it more difficult to finance the real economy

On the occasion of their becoming mandatory as from February 1, 2023, the Association of German Pfandbrief Banks (vdp) renews its criticism of the two capital buffers: the countercyclical capital buffer as well as the specific systemic risk buffer for the residential real estate sector.

“In particular, their amount and the timing of their activation are inappropriate,” Jens Tolckmitt, the vdp’s Chief Executive, emphasized: “The general data on the residential real estate financing market already argued against this measure when the capital buffers were announced. In the current environment, the remaining justifications for introducing them likewise cease to apply.”

Tolckmitt cited as examples the turnaround in real estate prices and in the growth of new lending volumes. The market, he pointed out, has thus anticipated what BaFin (Federal Financial Supervisory Authority) is now trying to curb.

Starting on February 1, 2023, German banks will be required to maintain a countercyclical capital buffer of 0.75% – based on their total financing business – and, additionally, a sector-specific risk buffer of 2% – based on their residential real estate financing business. According to the Deutsche Bundesbank, these macroprudential measures will increase the banks' need for Common Equity Tier 1 capital by around EUR 22 billion. This will inevitably restrict the banks’ lending opportunities. It is especially incomprehensible that an additional capital charge of 2.75% will henceforth be imposed on precisely the banks’ low-risk residential real estate financing business.

“This will make it harder for banks to carry out their core function as providers of finance to the real economy,” Tolckmitt stressed. “Regulation should enable banks to supply the necessary funds – not act as an obstacle.”

He went on to say that banks that are capable of functioning efficiently are, moreover, indispensable to realize major political projects such as the creation of affordable housing and the sustainable transformation of the economy. Tolckmitt therefore appealed to the Financial Stability Committee to take due account of the current economic setting and the changing risk situation in real estate financing when it next reviews the appropriateness of the capital buffers.