The BSA is pleased to contribute to the EBA’s consultation : as all our members are specialised residential mortgage lenders, the majority using the standardised approach, this matter is of great importance to us. For that reason, we concentrate in this response on RWs for loans secured on residential property only. We also support the EU-level response from the European Association of Cooperative Banks, to which the BSA belongs.
Setting the right guidelines is of great importance to all mortgage lenders across the EU. On the one hand, if and when evidence emerges of significantly higher loss experience, this should be recognised, and if genuinely necessary, can be appropriately reflected in higher risk weights. On the other hand, there is a risk of regulatory over-reaction, from two possible routes. The first, based on lazy stereotyping, prejudice and selective anecdote rather than proper objective evidence of higher loss experience, is all too easy to contemplate. That is the main danger that we think these guidelines (alongside the provisions of CRR Article 124) should guard against. The other particular danger is that the calibration of the threshold for any increase is wrong, given the broad brush nature of the existing 35% RW for residential mortgage loans. We explain this concern below. Finally, there is the general concern over increasing procyclicality.
Read the full response