Essentially, the new instrument (FinStabDEV) creates a reporting system for new residential real estate loans. The reporting obligation applies not only to banks, but also to funds and insurers that offer such loans. All the data will be collected in an anonymous and partially aggregated form. Relevant information includes the market value of the real estate and details on newly granted loans, e.g. the loan amount and repayment information. The loan-to-value ratio will also be recorded – that is the ratio of the total amount borrowed for a residential real estate purchase to the value of the real estate purchased. The Bundesbank will additionally be able to collect data on the borrower’s debt-servicing capacity and the ratio of the borrower’s total debt to income at the time when the loan is granted. This will provide an insight into borrowers’ long-term ability to meet their financial obligations, making it possible to gauge any build-up of risks among borrowers and any relaxation of lending standards.
The new statutory instrument (FinStabDEV) closes existing data gaps, thus ensuring that stability risks arising from residential real estate financing can be identified more successfully in the future. BaFin has various instruments at its disposal to avert risks to financial stability. For example, section 48u of the Banking Act (Kreditwesengesetz) gives BaFin the authority to limit the loan-to-value ratio or issue rules on the repayment (amortisation) of loans. The additional data will make it easier to fine-tune these instruments appropriately. It will also create the means to evaluate the effectiveness of any instruments that are deployed. Finally, by collecting this data, Germany is complying with the requirements of the ESRB.