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.

This note provides guidance to facilitate the staff’s advice on macroprudential policy in Fund surveillance. It elaborates on the principles set out in the “Key Aspects of Macroprudential Policy,” taking into account the work of international standard setters as well as the evolving country experience with macroprudential policy. The main note is accompanied by supplements offering Detailed Guidance on Instruments and Considerations for Low Income Countries

Germany: Selected Issues

Macro-prudential policies aimed at mitigating systemic financial risks have become part of the policy toolkit in many emerging markets and some advanced countries. Their effectiveness and efficacy are not well-known, however. Using panel data regressions, we analyze how changes in balance sheets of some 2,800 banks in 48 countries over 2000–2010 respond to specific macro-prudential policies. Controlling for endogeneity, we find that measures aimed at borrowers––caps on debt-to-income and loan-to-value ratios––and at financial institutions––limits on credit growth and foreign currency lending––are effective in reducing asset growth. Countercyclical buffers are little effective through the cycle, and some measures are even counterproductive during downswings, serving to aggravate declines, consistent with the ex-ante nature of macro-prudential tools.

This open access book discusses booming housing markets in cities around the globe, and the resulting challenges for policymakers and central banks. Cities are booming everywhere, leading to a growing demand for urban housing. In many cities this demand is out-pacing supply, which causes house prices to soar and increases the pressure on rental markets. These developments are posing major challenges for policymakers, central banks and other authorities responsible for ensuring financial stability, and economic well-being in general.This volume collects views from high-level policymakers and researchers, providing essential insights into these challenges, their impact on society, the economy and financial stability, and possible policy responses. The respective chapters address issues such as the popularity of cities, the question of a credit-fueled housing bubble, the role of housing supply frictions and potential policy solutions. Given its scope, the book offers a revealing read and valuable guide for everyone involved in practical policymaking for housing markets, mortgage credit and financial stability.

Germany’s macroprudential policy framework and toolkit are well developed. The FSAP found the institutional arrangements for macroprudential policy to be mostly sound and operating well. Capacity and expertise in risk monitoring is good, thanks to the analytical power and data access of the central bank, and close coordination between the macro- and microprudential arms of the financial supervisory authorities. Germany’s macroprudential toolkit continues to develop. The principal outstanding task is to add powers to set caps on debt-to-income and debt service-to-income ratios on residential real estate loans to the already-established powers over loan-to-value ratios and amortization rates. These additions will place Germany’s toolkit on a par with its peers.

This paper evaluates the risks and vulnerabilities of the German financial system and reviews both the German regulatory and supervisory framework and implementation of the common European framework insofar as it is relevant for Germany. The country is home to two global systemically important financial institutions, Deutsche Bank AG and Allianz SE. The system is also very heterogeneous, with a range of business models and a large number of smaller banks and insurers. The regulatory landscape has changed profoundly with strengthened solvency and liquidity regulations for banks (the EU Capital Requirements Regulation and Directive IV), and the introduction of macroprudential tools.