EBA issues Opinion on a measure to address macroprudential risk following a notification by the Ministry of Business, Industry, and Financial Affairs of Denmark

EBA issued an Opinion in response to a notification by the Ministry of Business, Industry, and Financial Affairs of Denmark. The Ministry intended to apply Article 133 CRD to activate a new SyRB, introducing a 7% systemic risk buffer rate for certain exposure categories in Denmark, specifically targeting real estate activities and construction projects. The goal is to enhance banks‘ capacity to absorb unexpected losses from dealings with real estate companies. The intended application date for the measure is 30 June 2024.
The SyRB applies to all credit institutions authorized in Denmark and exposures to non-financial corporations engaged in real estate and construction, excluding exposures to social housing associations and housing cooperative associations. The EBA acknowledges the macroprudential risk concerns and supports the proposed measure, emphasizing the need for calibration linked to identified systemic risks. The EBA also notes the potential complexity arising from the use of NACE Rev.2 codes for exposure identification.
The EBA’s assessment considers the size, riskiness, and interconnectedness of the targeted exposures, it recognizes the effectiveness and proportionality of the proposed measure, aligning with the EBA Guidelines on systemic risk buffers (eventid=8412). The EBA highlights the importance of a clear link between the SyRB and identified systemic risks to ensure effectiveness and proportionality.
The Opinion addresses the calibration of the SyRB rate, the impact on the internal market, and potential overlap with other buffers. The EBA welcomes the measure’s identification of subsets and its proportionality but raises concerns about potential granularity and complexity. Additionally, the EBA emphasizes the need for reciprocating authorities to avoid double counting of risks in the internal market.