The European Systemic Risk Board has published an occasional paper, with the views expressed noted as those of the authors, exploring how borrower-based measures (BBMs) could be applied to commercial real estate (CRE) lending to mitigate systemic risk. The paper argues that CRE BBMs are harder to implement than in residential real estate due to more diverse financing structures and highlights firm-level constraints as a practical way to limit high-risk borrowing and reduce regulatory leakage. The paper proposes targeting debt service and interest coverage ratios (DSCR/ICR) and limits on aggregate indebtedness at the firm level, potentially alongside loan-to-value (LTV) limits at the credit-facility level, and notes these could be used together and combined with capital-based macroprudential tools. To address leakages from CRE borrowers’ use of multiple funding sources, it recommends applying firm-level metrics that would restrict new lending and bond purchases by EEA-supervised financial institutions to CRE firms exceeding set thresholds, indirectly disincentivising additional borrowing from non-regulated or non-EEA lenders. It also stresses that national authorities should retain primary responsibility for defining scope, calibrating and activating measures, with options including materiality thresholds, limited deviations under a “comply or explain” approach, and cross-country consistency of definitions to support reciprocity. The paper positions its framework as aligned with ESRB Recommendation ESRB/2022/9 D, which calls for activity-based macroprudential tools to address CRE vulnerabilities and prevent regulatory arbitrage, and references the request for the European Commission to report on actions taken with regard to that recommendation by 31 December 2026.
European Systemic Risk Board 2026-02-11
European Systemic Risk Board paper sets out options for borrower-based measures to curb commercial real estate lending risks
The European Systemic Risk Board published a paper on borrower-based measures (BBMs) for commercial real estate (CRE) lending to mitigate systemic risk. It suggests firm-level constraints on debt service and interest coverage ratios, aggregate indebtedness, and loan-to-value limits, alongside capital-based tools, to limit high-risk borrowing and reduce regulatory leakage. The paper aligns with ESRB Recommendation ESRB/2022/9 D, emphasizing national authorities' role in defining and activating measures.