(Bloomberg) —
The Swiss government ordered banks to hold additional capital as a buffer against risks posed by the country’s property boom.
Banks will be forced to hold an extra 2.5% of risk-weighted assets linked to domestic residential mortgages, the government in Bern said Wednesday. The rules apply from Sept. 30.
A global real-estate boom saw countries record surging property prices during the coronavirus pandemic. The Swiss National Bank has repeatedly warned of the danger of a correction in the nation’s market as prices continue to rise and affordability becomes stretched. It indicated Wednesday that housing is overvalued, saying price gains can’t be fully justified.
“Both the volume of mortgage lending and prices for residential property have risen more strongly than can be explained by fundamental factors such as rents and income,” the SNB said in a separate statement.
Switzerland’s countercyclical capital buffer was introduced as part of the reforms to make banks more resilient in the wake of the 2008 financial crisis. It was in force from February 2013 to March 2020, when Swiss authorities adjusted regulatory standards to ensure banks continue lending to businesses and households hit by the coronavirus pandemic.
The country’s financial watchdog Finma said it supported the reintroduction of the buffer and argued for its reactivation when it was consulted by the SNB.
The volume of mortgages is “accelerating — despite the coronavirus pandemic,” said Finma’s Jan Bloechliger. “The institutions are taking increasingly higher risks in mortgage lending.”
(Updates with SNB, Finma comment starting in fourth paragraph)
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