Selected Issues Papers

Borrower-Based Macroprudential Instruments in Germany

Author/Editor:

Galen Sher

Publication Date:

July 24, 2023

Electronic Access:

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Summary:

Germany’s macroprudential policy toolkit is well-developed, but its key missing piece is a set of instruments related to a borrower’s income. In addition, existing powers to adopt LTV limits have not yet been deployed. Against this background, this paper advances the discussion of borrower-based macroprudential policy in Germany by explaining how borrower-based measures could strengthen financial stability, macroeconomic stability, and consumer protection; explaining how potential concerns about these instruments could be addressed; offering approaches to initial calibrations of instruments for further analysis; and hinting at their likely effects based on other countries’ experiences. The paper also uses a microsimulation model to show that activating borrower-based measures could provide as much capital to the banking system as the capital buffer requirements that were activated in 2022.

Series:

Selected Issues Paper No. 2023/060

Subject:

Financial institutions Financial sector policy and analysis Financial sector stability Housing prices International organization Loans Macroprudential policy instruments Monetary policy Mortgages Prices

Frequency:

Regular