Navigation and service



ESRB recommendation
ES­RB-Rec­om­men­da­tion on vul­ner­a­bil­i­ties in the Eu­ro­pean com­mer­cial re­al es­tate sec­tor (ES­RB/2022/09)

On 25 January 2023, The European Systemic Risk Board (ESRB) published a cross-country recommendation on vulnerabilities in the European commercial real estate (CRE) sector.

The ESRB is of the opinion that adverse developments in the CRE sector can have a systemic impact on both the financial system and the real economy. Credit institutions are particularly exposed to risks through CRE loans. Available data suggests that banks are lending at high loan-to-value (LTV) ratios in several European countries. If the value of assets used as collateral for CRE loans decreases, the LTV ratio increases. This could lead to an increase in losses from loan defaults and rising capital requirements. Non-banking entities such as real-estate funds and insurance undertakings are also vulnerable due to their exposure to the CRE sector. The systemic impact could increase as a result of interlinkages between countries and interconnections between financial intermediaries. Against a background of rising construction and financing costs, decreasing yields, a subdued economic outlook and a structural decline in demand for commercial real estate, the ESRB anticipates risks to financial stability in the medium term.

Hence the ESRB has made the following recommendations to microprudential and macropreduential supervisory authorities and to the European Commission. The ESRB recommends improving the monitoring of systemic risks stemming from the CRE sector (Recommendation A). The supervisory authorities should ensure that financial institutions have sound financing practices and prudent risk management practices in place (Recommendation B). Furthermore, the ESRB recommends increasing the resilience of financial institutions (Recommendation C) and ensuring that risks are adequately addressed by macroprudential policies. If deemed necessary based on the materiality of risk exposures, it is recommended that the competent authorities activate capital-based measures for banks, improve the resilience of investment funds, insurance undertakings and pension funds, and assess the use of borrower-based instruments. Furthermore, it is recommended that the European Commission supplements the existing regulatory framework with activity-based macroprudential tools. The existing framework focuses on the regulation of individual financial institutions (entities) such as banks and insurance undertakings. Activity-based regulation addresses individual activities, regardless of the entity that carries them out. The goal is to address the vulnerabilities in the CRE sector and to prevent regulatory arbitrage between banks and the non-banks (Recommendation D).

Here you can find an overview of all ESRB recommendations or warnings that are relevant for Germany.