Macroprudential instruments are designed to enhance the resilience of the financial system as a whole. Their use should be limited to situations in which the financial system is unable to cope with cyclical downturns or unexpected major incidents or needs help in recovering from them following a period of correction.
Existing macroprudential instruments
Germany laid the necessary legal foundations for a number of macroprudential instruments with the implementation of Basel III in the EU. Examples of macroprudential instruments that are already available include capital buffers for systemically important banks and the countercyclical capital buffer.
Capital buffer for systemically important institutions
Since the beginning of 2016, BaFin has the power to rule that systemically important credit institutions must hold additional capital buffers. A distinction is made between capital buffers for global systemically important institutions (article 10f of the Banking Act) and capital buffers for other systemically important institutions at the national level (article 10g of the Banking Act). In Germany, BaFin, in consultation with the Bundesbank, is responsible for determining which institutions are classified as global or other (i.e. national) systemically important institutions.
Countercyclical capital buffer
The countercyclical capital buffer is a macroprudential instrument for the banking sector (article 10d of the Banking Act). Its aim is to reduce risks arising from excessive lending to the private non-financial sector. Periods of excessive lending can be problematic from the point of view of financial stability. If lending is too high relative to general economic trends, this can be a sign that risks are not being adequately considered. To address this, BaFin can require an additional capital buffer in times of excessive growth in lending, thereby strengthening banks’ resilience.
Planned macroprudential instruments
The Financial Stability Committee reviews on an ongoing basis whether the available instruments are adequate or whether new macroprudential instruments are needed. In this context, the Financial Stability Committee issued a recommendation on 30 June 2015 to create instruments for the residential real estate sector as a preventive measure. On 21 December 2016, the Federal Cabinet adopted a draft bill to implement the recommendation by supplementing financial supervision law.