The European Mortgage Federation today (Thursday) called for European Union leverage ratio legislation to take into account EU specificities, warning that not taking into account the business models of specialised mortgage lenders could adversely affect financial stability and growth.

Under the Capital Requirements Regulation (CRR), the European Commission is to report to the European Parliament and Council on the impact of a leverage ratio on the EU banking industry before proposing legislation, and the EMF said in a position paper released today that the Basel framework should be adapted to take into account EU specificities.

The industry body noted that the Commission will by the end of 2016 announce its intentions with regard to the introduction of one single binding leverage ratio or different leverage ratios for different business models, with input from the European Banking Authority (EBA).

The EMF is pushing for a differentiated leverage ratio, with weights assigned to specific types of lending that would otherwise be negatively affected.

The Basel Committee on Banking Supervision has proposed a threshold of 3% and higher minimums have also been suggested, whereas the leverage ratios of specialised lenders are in some cases considerably below 3% because mortgage lending is a low risk activity and hence lenders can set aside lower proportions of capital for prudential and capital requirements purposes, according to the industry body.

“Should a leverage ratio minimum be set to an overly restrictive level, specialised mortgage lenders would have to restructure, deleverage or raise capital, with potentially negative effects on EU financial stability and economic recovery, including job creation and growth potential,” said Luca Bertalot, EMF-ECBC secretary general.