The Board of the Financial Supervisory Authority adopts the risk weight floors for Norwegian residential and commercial real estate exposures
The Board of the Financial Supervisory Authority decided at its meeting on 19 August 2021 to adopt the average risk weight floors for residential and commercial real estate exposures located in Norway, set by Norway’s macroprudential authority (Finansdepartementet), to be applied to credit institutions registered in Finland. The floor is 20% for Norwegian residential real estate exposures and 35% for Norwegian commercial real estate exposures. The floors will apply, as of 11 September 2021, to credit institutions that have adopted IRB approaches for credit risk and whose Norwegian real estate exposures exceed NOK 32.3 bn and commercial real estate exposures exceed NOK 7.6 bn.
Norway’s macroprudential authority, the Ministry of Finance (Finansdepartementet), adopted a decision on December 2020 to set, pursuant to Article 458 of the Capital Requirements Regulation (EU) N:o 575/201, risk weight floors for Norwegian residential real estate exposures (20%) and commercial real estate exposures (35%). Finansdepartementet also adopted a decision to set a 4.5% systemic risk buffer requirement for the domestic exposures of credit institutions operating in Norway. The requirement replaced the earlier systemic risk buffer requirement of 3% which was applied to credit institutions’ total exposures.
The European Systemic Risk Board (ESRB) has recommended that other Member States apply the risk weight floors and systemic risk buffer requirements set by the Norwegian authorities to the Norwegian exposures of their domestic credit institutions. Under the recommendation, the Norwegian systemic risk buffer requirement can be adopted for application within a transition period that is longer than the standard transition period, i.e. within 18 months. The recommendation also states that relevant authorities may adopt the Norwegian systemic risk buffer measure in a way and at a level that takes account of any overlap or difference in the capital requirements applicable in their Member State and Norway, until Directive (EU) 2019/878 (CRD V) becomes applicable to and in Norway.
The Board of the Financial Supervisory Authority considers it justifiable to, as a rule, adhere to the ESRB recommendation on the reciprocation of the Norwegian systemic risk buffer measure. Due to the differences in Finnish and Norwegian legislation, it is however justifiable to take at a later stage the decision on the application of the systemic risk buffer measures to Finnish credit institutions. The decision will be taken only when there is adequate information on the transposition of the currently applied EU directive on credit institutions (CRD V) into Norwegian legislation and on how the legislative changes are taken into account in the rationale for setting and the calibration of the Norwegian systemic risk buffer requirement and other macroprudential measures.
Due to the significant effect of the systemic risk buffer measure and the uncertainties related to the pandemic and the financial system, it is also justifiable to apply in the adoption of the systemic risk buffer requirement a transition period that is longer than the standard transition period. The decision on the application of the systemic risk buffer measure will be taken at a later stage and will enter into force 12 months after the decision is taken, but no earlier than after the 18-month transition period stated in the ESRB recommendation, i.e. on 11 December 2022.
For further information, please contact:
Marja Nykänen, Chair of the Board of the Financial Supervisory Authority, tel. +358 9 183 2007