The situation on the Swiss real estate market is unstable. The risk of an abrupt correction is increasing. The Federal Council is therefore reactivating the countercyclical capital buffer. This should make banks more crisis-proof.
The situation on the real estate market is unstable: reflections in Schwamendingen.
tsf. The Federal Council reactivates the countercyclical capital buffer. In order to counteract the increasing risks on the mortgage and real estate markets, from the end of September 2022 banks must hold additional equity for residential mortgages of 2.5 percent. The Federal Council announced this on Wednesday. The Swiss National Bank (SNB) had recommended this step.
The additional funds that banks have to secure now include 2.5 percent of those risk-weighted positions that are directly or indirectly secured by a mortgage on a residential property in Germany. This is the maximum possible amount under the applicable Capital Adequacy Ordinance.
The countercyclical capital buffer is intended to strengthen the resilience of the banking sector when corrections occur as a result of imbalances in the mortgage and real estate markets. At the same time, according to the will of the Federal Council, it should prevent the situation from deteriorating further.
At the beginning of the Corona crisis in March 2020, the countercyclical capital buffer was deactivated from its previous level of 2 percent in order to give banks the greatest possible leeway when lending to companies. Since then, vulnerabilities on the mortgage and residential real estate markets have increased, writes the Federal Council. Both the volume of mortgage loans and residential property prices have risen more than fundamental factors such as rents or income can explain.
The risk of an abrupt correction on the mortgage and real estate markets, triggered for example by an unexpectedly sharp rise in interest rates, has increased. In the communication, the Federal Council warns that such a correction could have serious consequences for borrowers and the banking sector.
In addition, compared to the beginning of the pandemic, the economic situation has brightened and the uncertainty regarding companies’ access to credit has decreased significantly. The SNB writes in its justification that there are currently no signs of a credit crunch for companies