Opinion of the European Central Bank of 15 July 2024 on the introduction of a reporting obligation in respect of mortgage-related data (CON/2024/25)

OPINION OF THE EUROPEAN CENTRAL BANK of 15 July 2024 on the introduction of a reporting obligation in respect of mortgage-related data (CON/2024/25) Introduction and legal basis

On 23 May 2024 the European Central Bank (ECB) received a request from the Dutch Minister for Finance for an opinion on a draft law amending the Law on De Nederlandsche Bank (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and Article 2(1), third, fourth and sixth indents, of Council Decision 98/415/EC , as the draft law relates to De Nederlandsche Bank (DNB), the collection, compilation and distribution of monetary, financial, banking, payment systems and balance of payments statistics and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with Article 17.5, first sentence, of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law

1.1 Under the draft law, banks, investment funds, pension funds and insurance corporations established in the Netherlands or acting through a branch located in the Netherlands are required to report to DNB via electronic means granular data on mortgage loans relating to residential and commercial real estate. According to the draft law, DNB needs such data in the context of two of its tasks , namely to promote the stability of the financial system and the collection of statistical data and the production of statistics. 1.2 The reporting obligation is to be further developed by an implementing decree that may set out the information to be provided, the periodicity and deadlines for the provision of this information, the way in which the data relating to loans for house purchases should be pseudonymised by the reporting parties, and the threshold below which a company is exempt from the reporting obligation. Broadly speaking, the information on a loan will include data on the borrower, and the collateral and the risk characteristics, including default, interest rate repricing and climate risks, but will not be able to be traced back to individual households.

1.3 According to the memorandum of understanding accompanying it, the draft law will re-establish a previously existing practice whereby DNB will request granular loan-level mortgage data from banks, pension funds, insurance corporations and investment funds under its supervision. This request is transformed into a periodic reporting obligation. At the same time, the draft law imposes certain legal safeguards, mainly in the area of data protection and privacy, for the acquisition and processing of this information. 1.4 Under the draft law and its implementing decree, DNB may process and provide the collected data under certain conditions to organisational units of DNB that are entrusted with a different task, such as the part of DNB dealing with prudential supervision. Such supervision must focus on the soundness of financial undertakings and the stability of the financial system. The draft law also provides that DNB may share the data under certain conditions with the International Monetary Fund (IMF), the Financial Stability Board and the Bank for International Settlements in view of their tasks in the area of financial stability. In this regard, it is understood that the data to be collected under the draft law and that may also be shared under the specified conditions solely concerns data collected from the DNB. 1.5 Under the draft law, granular loan-level residential mortgage data is collected. This aspect sets it apart from existing reporting requirements of credit institutions, such as under Regulation (EU) No 575/2013 of the European Parliament and of the Council , which are aggregated at institution level.

2. Observations

2.1 For the analysis of the pass-through of monetary policy via the financial sector to the real economy, access to granular data on commercial and residential mortgage loans is highly valuable, as they allow a detailed assessment of the monetary policy transmission. The ECB therefore strongly supports the draft law. Granular data enhance the monetary analysis based on aggregate macroeconomic data, taking into account that the transmission of monetary policy differs depending on borrower characteristics. Specifically, detailed data such as data on household income, indebtedness, the probability of their default as well as risks related to the interest fixation periods of mortgages and the value of the real estate collateral for the mortgage loan, provide crucial information for assessing household vulnerabilities. In addition, granular data on commercial real estate are essential for assessing credit risks in this sector, which may spill over to other sectors. Credit risks related to vulnerabilities of households and firms across mortgage market segments have an impact on credit conditions, access to new credit, the prolongation of existing mortgages, and, in turn, on private consumption, investment and the economy as a whole. In addition, the provision of the energy label of the real estate would add further value allowing for enhancement of the analysis of credit risks related to climate change. The fact that the provisions of the draft law apply to banks, investment funds, pension funds and insurance corporations allows for a more holistic characterisation of the transmission mechanisms of monetary policy. Against this background, the ECB highly welcomes the objective and detail of the draft law.

2.2 Having access to granular data on mortgages is essential for a macroprudential authority to adequately perform its financial stability tasks. Shocks in the housing market are often a determining factor in the materialisation or amplification of vulnerabilities in the financial system with negative effects on the real economy. These risks are particularly important for the Netherlands, which has a tight housing market, elevated housing prices and generous mortgage standards. A detailed and structural monitoring of the developments in housing prices, indebtedness of households and firms, and the credit quality of mortgage portfolios is therefore key in identifying and addressing potential risks for financial stability. Because of the heterogeneity of the market, the granularity of the data is needed across regions, households and characteristics of the real estate and mortgage loan. For example, a recent study on the impact of floods in the Netherlands on credit risks in the housing market used geographical-specific data to perform its analysis and concluded that loan-to-value ratios are an important driver of the impact on capital ratios for banks. Granular data are also needed to implement targeted macroprudential policies to mitigate systemic risks. The measure that imposes a floor on the risk weights of mortgage portfolios is calibrated on the specifics of the underlying loan- 6 7 to-value ratios . Finally, in its recent report on financial stability in the Netherlands , the IMF also recommended the creation of a clear legal basis for access to granular data. 2.3 The ECB supports the proposed granular reporting as it offers several significant advantages. By analysing individual loans, their terms, and borrower profiles, analysts gain a deep understanding of market dynamics, which is especially relevant in the multifaceted Dutch mortgage market. Policymakers benefit from this agility, which allows them to make informed decisions and implement targeted policies. Additionally, the flexibility of granular data ensures that such data serve various purposes, from risk assessment to policy formulation. The ECB welcomes the proposed reporting scheme; reusing the AnaCredit data model, it concentrates on real estate loans and their features, and includes non-bank lenders to achieve comprehensive Dutch real estate loan market coverage. Moreover, the draft law respects the proportionality principle, balancing adequate coverage with reporting burden, and allowing lenders with small mortgage portfolios to be exempted from reporting. 2.4 It is crucial to note that the goals of the forthcoming Integrated Reporting Framework (IReF), which include the reduction of the reporting burden on reporting agents and enhancing the quality of the data, are taken into account in the implementing decree. 2.5 Regarding the content to be reported by banks, the ECB considers that providing not only the energy label, but also the data underpinning it, especially the level of primary energy use in kWh/(m2.y) and, where possible, greenhouse gas emissions and the life-cycle global warming potential, would allow DNB or external stakeholders to better compare the performance of the real estate assets at the international level. Indeed, the methodologies and thresholds used to determine energy labels may differ considerably across countries, even after the revision of Directive (EU) 2024/1275 of the

European Parliament and of the Council , and access to data on the underlying metrics may be of importance for external stakeholders, in order to better assess climate change-related risks . This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 15 July 2024. [signed]

The President of the ECB

Christine LAGARDE