Germany’s Federal Financial Supervisory Authority finalizes increase in reciprocal Austrian property risk buffer to 2%, then 3.5%

Germany’s Federal Financial Supervisory Authority (BaFin) has issued a final order raising the reciprocally applied Austrian sectoral systemic risk buffer from 1% to 2%, followed by an increase to 3.5% from July 1, 2027. The decision finalizes the proposal consulted on in September and increases the buffer BaFin first recognized in February 2026. BaFin endorses the Austrian assessment that 1% is insufficient to cover the identified commercial real estate risks. The initially uncertain effects of the revised Capital Requirements Regulation on relevant exposures and capital requirements proved limited, supporting the Austrian central bank’s assessment that a 3.5% buffer is appropriate to cover potential losses under an adverse economic scenario. The exposure scope and EUR 100 million materiality threshold remain unchanged. Covered German institutions and groups must apply the buffer where defined Austrian exposures exceed that threshold on an individual, partially consolidated or consolidated basis. Relevant exposures concern specified loans secured by commercial real estate to nonfinancial corporations in building construction, specialized construction activities and real estate activities, excluding nonprofit housing associations. Assessments on a partially consolidated or consolidated basis aggregate exposures held through branches, direct cross-border lending and subsidiaries. Reciprocal application extends the Austrian requirement to German institutions with material exposures that would not otherwise be covered, limiting regulatory arbitrage.