EBA seeks legislative clarifications on mortgage lending value

The European Banking Authority (EBA) published today an Opinion on mortgage lending value (MLV) addressed to the European Commission and related to the EBA's mandate to deliver technical standards harmonising the concept of MLV in the Capital Requirements Regulation (CRR). In this Opinion, the Authority raises concerns about the possible unintended consequence that a harmonised definition of MLV across the CRR might have on the EU covered bonds market.

 

MLV is a concept defined in the CRR, and refers to a prudent and long-term value of immovable property. The term MLV is referred to in several areas of the CRR, namely in the credit risk area, the credit risk mitigation framework, the large exposure regime, and indirectly in the context of eligibility criteria for the covered bond preferential risk weights.

 

In its Opinion, the EBA explains that the application of a harmonised concept of MLV could have a disruptive impact in the covered bonds market across the EU both from a legal and financial stability perspective. In particular, the Opinion highlights the operational consequences of a change in the valuation of immovable property collateral, and the fact that such valuation plays a central role in the calculation of capital requirements in covered bond markets.

 

While stressing the importance of pan-EU harmonisation of the MLV concept, the EBA is of the opinion that the scope of application of the RTS on MLV should be limited to the credit risk area, the credit risk mitigation and the large exposure framework. Therefore, the EBA is advising the Commission to initiate appropriate legislative steps with a view to limiting the scope of these RTS on MLV.

 

In light of the concerns raised, the EBA called on the EU Commission to clarify the scope of the mandate laid down in the CRR so as to avoid these possible unintended implications, which could happen in the context of the work on the Capital Markets Union and a comprehensive review of EU covered bond frameworks. Until such clarification is provided, the EBA will not work further on its mandate.

The EBA is mandated in Article 124(4)(a) of the CRR to deliver technical standards, which harmonise the concept of MLV in the CRR. The EBA's competence to deliver the Opinion is based on Article 34(1) of Regulation (EU) No 1093/2010. In accordance with Article 14(5) of the Rules of Procedure of this Board of Supervisors the Opinion has been adopted by the Board of Supervisors.