Borrower-Based Macroprudential Instruments in Germany

Selected Issues Papers, July 24, 2023

Source details

Germany’s macroprudential policy toolkit is well-developed, but its key missing piece is a set of instruments related to a borrower’s income.
Existing powers to adopt LTV limits have not yet been deployed.
Borrower-based measures could strengthen:
- financial stability,
- macroeconomic stability,
- consumer protection.
A microsimulation model in the paper shows that activating borrower-based measures could provide as much capital to the banking system as the capital buffer requirements that were activated in 2022.

The paper explains how potential concerns about borrower-based instruments could be addressed.
It offers approaches to initial calibrations of instruments for further analysis.
The paper hints at likely effects based on other countries’ experiences.

Uses a microsimulation model to compare the capital-provision effects of borrower-based measures with the capital buffer requirements activated in 2022.
Provides example calibrations and references to a housing market crash scenario and a reference scenario as analytical contexts.