See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/361248243

Between technocracy and politics: How financial stability committees shape

precautionary interventions in real estate markets

Article in Regulation & Governance · June 2022

DOI: 10.1111/rego.12476

CITATIONS READS

6 47

2 authors:

Matthias Thiemann Bart Stellinga

Sciences Po Paris Netherlands Scientific Council for Government Policy
103 PUBLICATIONS 863 CITATIONS 30 PUBLICATIONS 171 CITATIONS

SEE PROFILE SEE PROFILE

All content following this page was uploaded by Bart Stellinga on 13 June 2022.

The user has requested enhancement of the downloaded file.

Regulation & Governance (2022) doi:10.1111/rego.12476

Between technocracy and politics: How financial stability

committees shape precautionary interventions in real
estate markets
Matthias Thiemann
Sciences Po Paris, Paris, France

Bart Stellinga
The Netherlands Scientific Council for Government Policy (WRR), The Hague, The Netherlands

Abstract
Implementing precautionary measures that have obvious distributional consequences today but often only invisible future ben-
efits is politically difficult. It requires that policymakers reconcile technocratic expertise with political consent. This paper
traces attempts to enact such measures, focusing on countercyclical policies to limit the systemic risks of housing booms as
proposed by financial stability committees in Germany, France, and the Netherlands from 2015 onwards. These committees
bring together technocrats and political authorities in order to overcome the inaction bias inherent to these measures, seeking
to forge both epistemic and political consensus on the need for action. We find that the work of these committees is character-
ized by lengthy processes of consensus-building, during which technocrats amass evidence and search for politically acceptable
solutions. We argue that whether this leads to meaningful steps crucially depends on the committee’s institutional set-up.
What particularly matters is its capacity to engage the Ministry of Finance in binding discussions and the governance arrange-
ments for the activation of precautionary instruments, which shape whether a shared framing of the problem and appropriate
response emerges.
Keywords: governance, inaction bias, macroprudential tools, precautionary measures, real estate.

1. Introduction
Many pressing societal challenges—preventing financial instability, mitigating climate change, preparing for
pandemics—necessitate precautionary measures based on scenario-analyses of an uncertain future. Their com-
plexity suggests a key role for expert agencies in generating consensus on the nature of the problem and potential
solutions. Yet, these policy actions have strong distributional consequences, especially when policymakers act
boldly. They therefore require political consent, as technocrats alone are either not mandated or fear the political
backlash such measures could entail. However, political authorities alone are hardly likely to enact such con-
straining measures: future benefits are often dispersed and invisible, and effective crisis-prevention measures
could ironically lead voters to (incorrectly) blame policymakers for disproportionately strong action. While all
this suggests a strong “inaction bias,” in practice policymakers do implement precautionary policies. Key ques-
tions are which conditions facilitate the timing and significance of such actions, and in particular what kind of
governance set-ups facilitate a coupling of technocratic expertise and political authority so that it leads to “mea-
sured action” (Callon et al., 2002, p. 193).
These issues are particularly pressing for precautionary financial stability policies: anticipating speculative
developments and taking away the punch bowl before the party gets out of control (Krippner, 2011). The finan-
cial crisis of 2008 demonstrated once more that failing to act in a precautionary manner can entail high societal
costs (Aikman et al., 2015). In response, policymakers have implemented macroprudential policy frameworks as
the answer to the serious economic repercussions of financial markets’ boom-bust dynamics (G20, 2009). These

Correspondence: Matthias Thiemann, Sciences Po Paris, 27 rue Saint Guillaume, Paris 75007, France.
Email: matthias.thiemann@sciencespo.fr
Accepted for publication 23 May 2022.
© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any
medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.
frameworks should allow for a countercyclical regulatory approach, enabling policymakers to tighten require-
ments during booms and to loosen them when risks recede (BCBS, 2010). As collapsing housing markets in the
United States and several EU countries were at the crisis’ epicenter, real estate markets were to be a prime target
of such policies.
How can policymakers enact precautionary policies that seek to limit systemic risks that emanate from a
housing boom? Some observers argue that the issue’s technical nature and the political difficulty of interven-
ing in a boom—during which the perceptions of risk and hence the appetite for countercyclical action among
the public are the lowest—imply that an independent expert authority should be in charge (Borio, 2018,
p. 7). Yet, others point to the contentious nature of macroprudential knowledge and countercyclical actions’
distributive implications, necessitating political actors’ participation in such decision-making (Tucker, 2018).
This problem is aggravated by the nature of the policy tools, which in their most constraining form (loan-to-
value and loan-to-income limits) directly impinge upon citizens’ ability to borrow, going against many West-
ern governments’ aim in the past decades to increase homeownership through lenient credit policies
(Ansell, 2019).
How have policymakers dealt with these paradoxes (Baker, 2017)? The regulation and governance literature
suggests that politicians can either opt for policy delegation (subject to particular conditions) or remain in con-
trol. In macroprudential policy, however, many countries have opted for a—to our knowledge—novel institu-
tional solution: financial stability committees (FSCs). These unite the relevant ministry (usually the Ministry of
Finance) and financial regulators (specifically central banks) to deliberate over these policies and—depending on
the governance set-up—enact them (Edge & Liang, 2019).1 While the creation of such committees partly reflected
systemic risks’ cross-cutting nature, they also constituted a way to bring together “politics” and “expert gover-
nance.” Neither fully delegating these issues to technocrats nor maintaining full control by political actors, these
committees appear to be an innovative strategy to enact precautionary measures with significant distributional
consequences.
Surprisingly, the literature on macroprudential reform has paid scant attention to this institutional innova-
tion, in particular to the question whether and under which conditions the FSCs’ deliberative politics lead to
meaningful precautionary actions. This paper attempts to fill that gap by comparing the paths toward macro-
prudential action in three large EU countries: Germany, France, and the Netherlands. These countries have desig-
nated an FSC as its macroprudential authority and have, in the context of ultra-low interest rates, experienced a
sustained and accelerating post-crisis housing boom from 2015 onwards, which brought with it a rise in systemic
risk emanating from that sector (ESRB, 2016, 2019a, 2019b, 2019c). Central to our analysis is the question under
which conditions expert agencies and political actors achieve consensus on the need for forceful action.
We show that instead of a swift response to identified systemic risks, in all cases countercyclical action
required lengthy deliberations within the FSCs, consisting of attempts to generate consensus on both the “episte-
mic dimension” (agreeing on the nature of the problem) and the “political dimension” (designing politically
acceptable solutions). We argue that the success of this consensus-formation process crucially depends on the
FSC’s institutional set-up. What particularly matters are the FSC’s institutional mechanisms to engage the politi-
cal side—the Ministry of Finance—in binding discussions, and the extent to which the FSC can ensure the activa-
tion of different kind of tools itself, specifically the most constraining measures. When the political side is
implicated by the FSC’s deliberations there is an incentive to achieve both epistemic and political consensus, thus
creating the preconditions for countercyclical action. Yet, if the political side is unconstrained by the outcome of
these deliberations, or can steer this outcome, chances for meaningful action decrease.
This paper proceeds as follows: We first briefly review the literature on macroprudential policy, highlighting
how FSCs appear to be a novel way to institutionally link political authority and expertise that deserves further
analysis. The subsequent section explains our case selection, process-tracing method and data sources. We then
describe how the FSC’s members in Germany, France and the Netherlands tried to generate epistemic and politi-
cal consensus on countercyclical action. The conclusion presents the main lessons from the comparison, high-
lights some limitations and discusses the article’s broader relevance for the study of the enactment of
precautionary measures.

2 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
2. Marrying expertise and politics through FSCs
2.1. The governance of precautionary macroprudential policies in the EU
Macroprudential policy involves the use of primarily prudential tools to limit systemic financial risks (IMF et al.,
2016, p. 4). Policymakers considered credit booms in real estate markets as a key example of a systemic risk,
implying that macroprudential policy would need to be specifically concerned with real estate risks
(Hartmann, 2016). Such risks can be mitigated through borrower-based and/or lender-based instruments (see
Table 1). Examples of the first are loan-to-value and loan-to-income limits. These instruments reduce payment
and “negative equity” risks for borrowers, limiting systemic risks by protecting banks from losses and by con-
straining mortgage credit creation. Lender-based instruments target mortgage providers, for example the imposi-
tion of tougher requirements for banks’ mortgage exposures. Such system-wide constraints increase banks’ ability
to weather mortgage-related losses, and may also disincentivize mortgage credit creation (although, as discussed
below, borrower-based measures are considered stronger in this respect).
However, countercyclical macroprudential policy is both epistemically controversial (Agur & Sharma, 2013;
Stellinga, 2020; Thiemann, 2019) and politically sensitive (Tucker, 2018). Regarding the epistemic controversies,
while important progress has been made in systemic risk measurement (cf. Thiemann et al., 2021), systemic risks
are tail-events that only materialize infrequently, so macroprudential decision-making requires a large degree of
judgment. As the financial sector is adaptive and complex, systemic risks change over time, while financial mar-
kets are susceptible to unpredictable and non-linear transitions (Stellinga, 2020; Stellinga & Mügge, 2017). All this
implies that achieving epistemic consensus on the need for countercyclical action is far from straightforward.
Macroprudential policy’s political dimension has also featured prominently in scholarly analyses (Baker, 2018;
Belfrage & Kallifatides, 2018; Helleiner, 2014; Stellinga, 2021). Countercyclical actions aimed at constraining
credit growth—particularly mortgage credit—may be unpopular among a part of the electorate and lobby groups.
Banks and realtors may object to such measures as they profit from the boom. Electorally, however, the
borrower-based measures are most controversial. For individual borrowers it makes more sense to loosen
borrowing-limits than to tighten them during a boom with rapidly rising housing prices. As such, tightening such
measures may lead to a strong backlash from voters, contributing to an inaction bias. In an era in which social
stratification largely unfolds through asset-ownership (Fuller et al., 2020; Johnston et al., 2020), achieving episte-
mic consensus on the nature of the threat may not be enough: the salience of housing may pre-empt achieving
political consensus on countercyclical action.
The contentious nature of counter-cyclical policy measures has been reflected in an uneasy compromise
between technocrats and politicians. In the EU, the supranational dimension introduced an additional complica-
tion. On the one hand, reforms to install the macroprudential policy framework have empowered central banks,
prime examples of independent technocrats (McPhilemy, 2016; Moschella & Pinto, 2021). Many countries tasked
their central banks with the lender-based macroprudential instruments contained in the new EU banking rules:

TABLE 1 Lender-based and borrower-based macroprudential instruments

Type Macroprudential tools
Lender-based instruments Countercyclical capital buffer
Higher capital requirements
for lenders’ mortgage exposures
Borrower-based Loan-to-value limit
instruments
Loan-to-income limit
Debt-service-to-income limit
Amortization requirement
Explanation
Authorities may activate this buffer when credit grows too
rapidly, thereby increasing lenders’ resilience and discourage
lending
Authorities may impose extra stringent capital requirements
for lenders’ mortgage exposures, for example by increasing
“risk weights”
Limits the amount people can borrow relative to the value of
the house
Limits the amount people can borrow relative to their income
Limits the amount people may spend on debt service (interest
and principal repayment) relative to their income
A requirement for borrowers to pay-off the mortgage over
time, thereby incrementally decreasing their leverage

© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd. 3
the Capital Requirements Directive (CRD) IV and the Capital Requirements Regulation (CRR). Furthermore, at
the supranational level, the European Systemic Risk Board (ESRB), set up in 2011 as an extension of the ECB,
was to monitor systemic risks and issue warnings and recommendations to national authorities, another sign of
technocrats’ strong sway of over macroprudential policies (McPhilemy, 2016). In this way, the ESRB was to limit
domestic regulators’ “inaction bias,” particularly with respect to delicate asset classes such as real estate
(ECB, 2019; Schammo, 2019).
On the other hand, macroprudential policy’s political sensitivity—particularly given its potential impact on
real estate issues—implied that political actors have generally refrained from delegating control to financial super-
visors. The ESRB was only granted soft-law power, with national authorities being required to answer its recom-
mendations in a “comply-or-explain” manner. Moreover, the politically sensitive borrower-based tools—such as
loan-to-value limits (see Table 1)—have been excluded from the European regulatory agenda. While many EU
member states introduced them in national legislation, they were often placed outside of financial supervisors’
purview (Hartmann, 2016). This follows a general trend: as macroprudential policy has potentially significant dis-
tributional consequences, politicians have been reluctant to fully exclude themselves from the decision-making
process (Edge & Liang, 2019; Moschella & Pinto, 2021).
Crucially, to bring together epistemic and political actors, 12 out of 27 countries in the EU have mandated
FSCs as their domestic macroprudential authorities. These FSCs differ markedly in their set-ups, decision-making
procedures and powers, which range from the ability to calibrate tools, issue comply-or-explain recommenda-
tions, or publish non-binding warnings (Lombardi & Moschella, 2017). A key rationale for FSC’s is to coordinate
policies among different supervisors, reflecting systemic risk’s cross-cutting nature (Coban, 2021; Edge &
Liang, 2019). Importantly, however, they also ensure that the political side (often the Ministry of Finance, which
itself is a hybrid technocratic-political body) has a seat at the table. Allowing for consensual decision-making by
technocrats and political bodies, these committees seem to be an institutional solution that falls within the meth-
odological and conceptual divides of the regulation and governance literature, as identified by Benoît (2021).

2.2. FSCs as a bridge between expertise and politics

Issues that require precautionary measures with significant distributional consequences, such as mitigating sys-
temic risks in real estate markets, often necessitate an institutional set-up that marries two conflicting logics. On
the one hand, their complexity and the inherent epistemic uncertainty over the build-up of potential risks, sug-
gests a strong role for technocratic actors (Maggetti, 2007). The measures’ distributional consequences, and there-
fore their potential unpopularity among many societal actors, further strengthens the case for depoliticization
(Flinders & Buller, 2006). On the other hand, their distributional nature introduces another logic, namely the
necessity for political buy-in (Tucker, 2018), which is difficult as these measures have clear short-term costs but
uncertain long-term benefits. Obstacles include the need to overcome opposition from vested interests
(Carpenter & Moss, 2013) and the difficulty of proving that bold action is desirable (Majone, 2011). This leads to
the question what institutional configurations facilitate achieving consensus on introducing such precautionary
measures.
The regulation and governance literature of the last two decades is surprisingly silent about such settings and
the decision-making processes involving the close collaboration of regulatory agencies and political bodies within
them. This reflects a policy trend to create two-tiered regulatory systems, with technocratic agents having become
formally independent from their political principals (Levi-Faur, 2005; Thatcher, 2002). As such, the literature’s
main focus is on regulatory agencies’ degree of independence, not their direct collaboration with political actors
(Benoît, 2021).2 The literature thus roughly posits two institutional forms to deal with such issues—delegation to
experts, or the retention of political control—and explores the reasons for either choice by politicians
(Moschella & Pinto, 2021). Post-crisis macroprudential reforms, however, have resulted in institutional frame-
works that often do not fit easily in either category (Edge & Liang, 2019).
In this context, a particularly noteworthy feature of macroprudential reforms has been the above-mentioned
installation of FSCs in many countries, set up to force dialogue and compromise formation between technocratic
experts and political will. Their mode of functioning and the institutional factors shaping it can provide impor-
tant insights into how these two logics can be reconciled, making it a fruitful object of inquiry regarding the
4 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
institutional configurations amenable to the enactment of precautionary measures. To date, however, we know
very little about how these different institutional features affect the actual decision-making of these bodies, in par-
ticular the dynamics of epistemic and political consensus-formation that underlie them. Below, we review the lit-
erature on these features, noting the largely theoretical nature of these investigations.

2.3. FSCs in action

While political economy analyses have addressed FSCs’ role, they have mainly looked at the potential (rather than
actual) implications of their design for countercyclical action. Edge and Liang (2019, p. 13) point out that FSCs
are more likely to act when they have tools at their direct behest or can issue recommendations through a
comply-or-explain mechanism, and when they are not completely dominated by its political members. They find,
however, that “most countries [create] weak FSCs without mechanisms to promote actions, consistent more with
a symbolic political delegation motive and raising questions about accountability for financial stability” (ibid.,
p. 1). Similarly, Lombardi and Moschella (2017, p. 92) argue that FSCs have mainly been installed for “symbolic
reasons,” as they “provided a quick institutional ‘fix’ to signal to the public that […] policy-makers were
redressing regulatory mistakes.” Goodhart (2015) also posits that the US Financial Stability Oversight Council is
unlikely to solve the problems caused by the institutional fragmentation of supervisory competences. Yet
mirroring the broader political economy analysis of macroprudential reform, these studies all focus on the design
of macroprudential institutions, not how these institutions function in practice.
The few analyses of FSCs’ actual functioning provide interesting insights, yet due to their lacking comparative
perspective on institutional features of FSCs do not speak directly to our research question. Belfrage and
Kallifatides (2018), discussing the Swedish macroprudential experience, demonstrate that conflicts between differ-
ent macroprudential authorities united in an FSC can lead to policy stalemate. They expose the “reluctance with
which Governments introduce countercyclical [macroprudential regulation] in a context of credit growth, and
the lengths to which they are willing to go to constrain its development” (Belfrage & Kallifatides, 2018, p. 725),
linking this to financialization and housing’s political salience. Yet, whether the FSC’s institutional configuration
mattered for this outcome remains unanswered. Coban (2021) demonstrates how in the Turkish FSC, the central
bank arm-twisted the banking supervisor into action. Somewhat surprisingly, an alliance between the political
actor and the central bank within the FSC—based on the central bank’s epistemic prowess and personal relation-
ships between leading figures at the central bank and the treasury—contributes to macroprudential action, instead
of feet dragging by the political actor (ibid., p. 9). Yet, as such personal relationships are not an institutional fea-
ture, it is unclear whether these findings extend beyond the particular Turkish case.
The literature thus still leaves large gaps with respect to the institutional dynamics underlying FSCs’ actual
macroprudential interventions. Edge and Liang (2019) suggest that the FSC’s institutional configuration matters,
yet we know little about how the set-up of such decision-making bodies, the distribution of responsibilities and
competences of the different macroprudential actors shape the path toward taking action. The literature has a
rather static perspective on macroprudential action: either independent technocrats act upon identified threats, or
political actors are in control, leading to inaction. What may be the case instead, however, is that consensus
among the actors within these FSC’s on the need for action may emerge over time. This question becomes highly
relevant in the context of the upswing of the financial cycle in Europe from 2015 onwards.

3. Case study selection, method, and data

Which variables affect the response of FSCs to rising systemic risks in the housing sector? To investigate this
question, we focus on three comparable EU countries: Germany, France, and the Netherlands. These countries
received ESRB warnings (Germany and France in 2019; the Netherlands a warning in 2016 and a recommenda-
tion in 2019) due to the build-up of real estate related risks, which the ESRB linked not only to rising house
prices but also to growing levels of household indebtedness, deteriorating credit standards as well as banks’
increasing exposure to this asset class (cf. ESRB, 2019a, 2019b, 2019c). In all three cases the government had set
up an FSC several years after the crisis and subsequently designated it as the macroprudential authority. The cen-
tral banks—the Bundesbank, the Banque de France, and the DNB—have been tasked with monitoring systemic
© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd. 5
risks and developing recommendations, while in all countries the Ministry of Finance occupies an important role
in the macroprudential set-up.
These similarities allow us to compare how the interaction between technocrats and political actors unfolded
over time, and what variables made a difference in the policy response to identified systemic risks. We have
focused on institutional factors that may account for the different processes within these FSCs, in turn shaping
these countries’ different responses to the identified threats. We looked at the FSC’s precise set-up, that is the dis-
tribution of responsibilities and competences of the different macroprudential actors and how they shaped who
can intervene legitimately at what point in time regarding these issues. This includes the legal prerogatives of the
FSC itself with respect to the activation of macroprudential measures. We then studied how this institutional con-
figuration affected the process of epistemic consensus-formation, so whether the different actors come to agree
on the nature of the threat and the appropriate course of action, and how this process evolved over time. We also
looked at how it mattered for achieving political consensus, particularly for the use of either borrower-based or
lender-based instruments (Lepers, 2021). Borrower-based instruments are much more politically charged than
lender-based instruments (although banks may object forcefully to the latter), but also deemed more effective in
dampening cyclical aspects (Arena et al., 2020).
In this way, we have studied how policymakers try to resolve the paradox mentioned above: the necessity for
political buy-in for countercyclical action in a context when such action is politically very sensitive. Comparing
these countries then has allowed us to draw inferences about how the interplay between different institutional fac-
tors led to a particular course of action. In other words, we have looked for within-case evidence for what could
explain the policy outcomes and (through a comparison) why countries may have responded differently.
To assess the policy response’s significance (which constitutes our dependent variable), we have looked at
what instruments policymakers activate, the extent to which this constrains borrowers and lenders, and the pace
with which they are implemented. Weak action involves limited additional requirements that are hardly con-
straining and which are phased-in over several years. Strong action, in contrast, involves binding measures which
impose significantly lower thresholds than common at the time of implementation. To validate this assessment,
we have also looked at whether the relevant stakeholders consider the measures to be adequate. Particularly useful
in this regard are the ESRB’s publicly available assessments of the countries’ response to its warnings.
We have used an inductive process tracing approach (Beach & Pedersen, 2019; Trampusch & Palier, 2016) to
study in detail the deliberative processes between political and technocratic actors, allowing us to assess when
and why consensus-formation occurs that leads to macroprudential action. We base our findings on policy docu-
ments, position papers, reporting in the specialized press, and 22 semi-structured expert interviews with represen-
tatives of FSC members conducted between Fall 2019 and Summer 2021. We start our case-studies by describing
the countries’ crisis experience and the subsequent institutional configuration of their macroprudential policy
frameworks. We then analyze the period from which macroprudential actors started to flag financial stability
threats linked to the real estate sector, and trace how the different actors responded to this. Our analysis stops at
the outbreak of the COVID-19 crisis.

4. Macroprudential action in germany

After two decades of sluggish house price growth, caused by conservative lending policies and the burst of the
“reunification bubble” in 1993 (Mertens, 2015), Germany experienced an unprecedented boom from 2010
onwards (Handelsblatt 20 April 2021). Without strong pre-crisis price rises, policymakers initially saw no risks
and interpreted these developments as a desirable catch-up with general European dynamics.
The first debates on potential risks occurred in the FSC, which was created in November 2012.3 Chaired by
the Ministry of Finance (MoF) and composed of three high level delegates from the Bundesbank, the BaFin (the
banking supervisor) and the MoF, its structure was a compromise reflecting the policy community’s upheaval
due to the crisis (Handke, 2012). Due to its dismal performance, the government initially planned to integrate
BaFin in the Bundesbank. Yet, the BaFin’s continued subordination to the MoF made the Bundesbank fear for its
independence, thus rejecting this offer (Interview 4). The Bundesbank instead favored a bigger role as financial
supervision expert, which it assumed for macroprudential regulation. This included analysis and recommenda-
tion, but macroprudential measures were to be proposed based on a majority vote of the three members within
6 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
the FSC and then executed by the BaFin. Given the BaFin’s subordinated position, the MoF was, in theory, in full
control over macroprudential policy.

4.1. Political opposition to borrower-based measures

From 2014 onwards, stability risks linked to rising house prices preoccupied the FSC (AFS, 2014). The
Bundesbank, tasked with the analysis underlying the FSC’s debates, persistently singled out the post-2013 dynam-
ics as meriting sustained attention, identifying overvaluations in some cities of more than 20% (cf. Deutsche
Bundesbank, 2014). In response, in June 2015, the FSC recommended the lower chamber (Bundestag) to create a
legal basis for four borrower-based measures to limit credit expansion: debt-to-income (DTI), debt-service-to-
income (DSTI) and loan-to-value (LTV) limits and loan amortization requirements (AFS, 2015). Technocrats
within the MoF were pushing for an FSC recommendation to overcome political resistance against such measures
(Interview 5). To allow for evidence-based policy, the FSC also recommended that the Bundesbank and the BaFin
should start collecting data to ensure that, after activation, these measures’ effectiveness could be evaluated.4
During this law’s preparation, technocrats from the MoF, the Bundesbank and the BaFin jointly convinced
sceptical politicians of the need for such measures (Interview 5; 6). Yet during parliamentary debates in Spring
2017, SPD and CDU parliamentarians opposed their government’s own initial legal proposal, a reflection of hous-
ing’s increased political salience, caused by rising rent and housing prices (Bundestag, 2017). The SPD had been
the driving force behind the “Mietpreisbremse” in 2015 that aimed to limit the rising house prices’ impact on
peoples’ cost of living. The coalition also sought to facilitate homeownership. Parliamentarians thus argued that
the DTI and DSTI measures were counterproductive for the government’s ambition to increase housing construc-
tion, and could exclude potential homebuyers.
Despite intense lobbying by Bundesbank, BaFin and MoF technocrats (Interview 5), the Bundestag only pas-
sed the less invasive LTV limit and the loan amortization requirements (Bundesgesetzblatt, 2017). But Parliament
ensured that also these measures would be difficult to use. Before activation, the BaFin was required to consult
many stakeholders, including banking associations and several ministries. Furthermore, the legal ordinance that
would facilitate activation was not issued until January 2021, making these measures’ activation afflicted by legal
uncertainty. These delays also applied to the Bundesbank’s ability to request data from banks on individual bor-
rowers: while it was legally empowered to do so since 2017, the required legal ordinance was only issued in
February 2021, making the collection of such data practically impossible (Interview 7).
The FSB (2020), the ESRB (2019b), and the Deutsche Bundesbank (2019) repeatedly lamented this lack of
granular data on real estate developments, which prevented the Bundesbank from analyzing local developments
of credit quality and borrower finances’ sustainability (FSB, 2020, p. 3). The Deutsche Bundesbank (2019), p. 16f)
also repeatedly requested to create the missing DTI and DSTI measures, to no avail. Resulting from both political
stalling and administrative problems (Interview 1; 3; 7), all this meant that borrower-based measures, the most
constraining tools for countercyclical interventions, were hardly available.

4.2. Symbolic countercyclical action

To counter the boom, policymakers could therefore only use the two less intrusive borrower-based measures, the
countercyclical capital buffer (CCyB), or adjustments to mortgage risks weights in capital requirements. The
BaFin was reluctant to implement LTV measures, caused in part by a lack of legal clarity, BaFin’s fear to get sued
by credit institutions as well as ambiguous evidence regarding Germany’s position in the financial cycle
(Interview 7). It furthermore shared German savings banks’ fears that these measures would harm their profit-
ability (Interview 1; 5; 6).
The Bundesbank’s focus therefore shifted to the CCyB, which was officially available from January 2016
onwards. It was to be set by the BaFin based on the FSC’s recommendations. Up until 2017, the Bundesbank had
not called publicly for raising the CCyB, explaining house price rises mostly as a natural supply and demand
effect. Yet within the FSC a fierce debate on this was underway since 2016. The BaFin’s fear to negatively affect
weakly capitalized banks, and legal action by credit institutions, also made it wary of this macroprudential tool.
The MoF feared a clash between the BaFin and the Bundesbank, and considered it crucial to reach a consen-
sus to withstand the opposition by lobby groups. The MoF and Bundesbank therefore started evidence gathering
© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd. 7
to persuade the BaFin of the need for action (Interview 6; 7). Lasting more than 2 years, this process involved
additional data collection to satisfy the BaFin’s concerns about the evidence necessary to justify action (Interview 5).5
Most importantly, the Bundesbank undertook an ad hoc survey of banks’ lending policies, which showed that banks’
credit portfolio risks were rising, with loans given to riskier clients and a likely overvaluation of collateral (Deutsche
Bundesbank, 2019, p. 10). At the same time, data collection difficulties prohibited a sufficient (legal) justification for
borrower-based measures (Deutsche Bundesbank, 2019, p. 57).
The collected evidence lessened the BaFin’s concerns about legal uncertainties and demonstrated the need for
action. At the same time, the MoF had become increasingly worried about the rising probability of an economic
downturn and the concomitant financial stability risks, seeking insurance against blame by taking action
(Interview 2).6 The MoF thus increased the pressure on the BaFin in Spring 2019, side-lining its only remaining
objection that the CCyB would negatively affect banks’ profitability. In May 2019, the FSC therefore rec-
ommended to raise the CCyB to 0.25%; a recommendation which the BaFin subsequently enacted in June 2019.
The MoF’s appetite for action was also linked to discussions between the ESRB and the German authorities
on vulnerabilities in the German residential real estate sector. The ESRB published a warning in June 2019
(ESRB, 2019b), identifying high risks due to the “[p]rovision of new loans in an environment of overvalued house
prices as well as uncertainties regarding lending standards due to significant data gaps” (ESRB, 2019c, p. 60).
While published after the FSC’s decision, the recommendation and the prior debate with the ESRB likely
influenced the MoF. The BaFin and the Bundesbank were aware of this debate, with Bundesbank officials being
part of the ESRB discussion group. And as the ESRB had already sent a letter to the ESRB’s governing board
announcing this warning in March, it was anticipated well before its issuance in June (Interview 3; 5). Activating
the CCyB was therefore also an answer to the ESRB’s concerns, which in turn mentioned it as an attenuating fac-
tor in the warning’s risk assessment (ESRB, 2019b).
Still, German policymakers were well aware that the 0.25% CCyB would not in any way constrain the banking
sector (Interview 3; AFS, 2020, p. 24). Housing had gained even more political salience since 2018, when the gov-
ernment reinstated a subsidy for families to purchase homes. As such, there was no political will to impose bind-
ing constraints that could limit house purchases. In that sense, the CCyB activation is best understood as
symbolic politics: without any serious impact, it would insure the MoF against blame should a crisis occur
(Interview 5).
The German reaction to rising real estate risks was thus muted. The Bundesbank, supported by the ESRB,
pressed for action. It was opposed by the BaFin, who was pressured by savings banks and feared legal action, and
by parliamentarians, who feared blocking housing market access. While the MoF could have flexed its muscle to
force BaFin into action, it felt the need to build a consensus (through evidence construction) to signal unity
toward sceptical politicians and banks (Interview 6). As a consequence, epistemic consensus on the need for
action was achieved after several years of investigation and deliberation. However, due to this perceived need of
unity, and the Bundesbank lacking capacity to exert any additional pressure, the macroprudential action itself
was very limited and rather symbolic in nature.

5. Macroprudential action in France

In contrast to Germany, France experienced strong and persistent house price growth from 2000 up until the
financial crisis, resuming again after 2015. This trend and the concomitant rising household indebtedness and
deteriorating credit standards would occupy the Haut Conseil de stabilité financière (HCSF; the French FSC),
which was set up in June 2013 and became operational in 2014. Inspired by the British Financial Policy Commit-
tee, the FSC included the MoF (also acting as chair), the Banque de France (BdF), the ACPR (the banking and
insurance supervisor, de facto part of the BdF), the financial market supervisor, the accounting body ANC as well
as three independent experts.
The FSC’s design was a carefully crafted compromise, granting some degree of control to the political author-
ity, while allowing for the technocratic view to be heard. To empower the central bank’s macroprudential voice
while granting the final say to the Committee as a whole, the BdF Governor received the sole right to issue pro-
posals for recommendations and laws, which could be made public and which were then subject to a simple
majority vote by the committee. Furthermore, voting rights were distributed such that the MoF could in theory
8 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
be outvoted by an alliance of the other FSC members (Interview 10). While this was deemed highly unlikely to
materialize, as the MoF and BdF would likely refrain from a public display of frictions,7 it incentivized the MoF
to engage in consensus-formation (Interview 11).
This set-up was intended to ensure a frank discussion on financial stability issues, linking political authority
with the necessary technocratic expertise in an iterative process of consensus-formation (Interview 8, 11). Facili-
tating this was a joint MoF and BdF secretariat, in which the expertise of the latter outweighed the former
(Interviews 9, 10, 11). To allow the enactment of unpopular measures, the FSC could not only issue recommen-
dations, but was also given direct law-making powers. This included (from the start) the legal power to recom-
mend or legislate a change in borrower-based measures, to ensure that this tool was available in boom times
(Interview 11). While the BdF considered such tools very effective, particularly DSTI limits (Dietsch & Welter-
Nicol, 2014), the MoF was wary about this right, due to the measures’ distributive implications (Interview 10).

5.1. Rising concerns about deteriorating credit standards

From 2017 onwards, the ACPR and the BdF expressed concerns about deteriorating credit granting conditions,
historically high private debt levels, and a higher-than-average credit growth (HCSF, 2017a). Reflecting these
worries, in 2017 the FSC acknowledged a rise in fragilities linked to deteriorating credit granting practices
(HCSF, 2017b, p. 20). The ACPR reiterated this concern in 2018, explicitly asking for a “maintained vigilance”
on residential real estate financing (ACPR, 2018).
These slowly accumulating concerns finally led to the FSC’s decision in July 2018 to raise the CCyB to 0.25%
(HCSF, 2018). This indicated a slowly changing stance on stability risks linked to real estate, and constituted the
first outcome of a consensus-building effort by BdF-economists. Convincing the MoF of the need for action
required more than a year of data collection and persuasion (Interviews 8; 10; 11) and would continue beyond
2018. In July 2019, the FSC (2019c) decided to increase the CCyB to 0.5%, linking this to a very dynamic business
cycle (caused by low interest rates and high credit growth) and mentioning residential real estate dynamics as an
explicit motivation.
Still, before 2019 the FSC’s statements on housing developments generally remained reassuring, indicating
that “household indebtedness remains sustainable” (HCSF, 2018, p. 21) and that “the structural characteristics of
the French market reduce real estate risks” (HCSF, 2019c, p. 63). This confidence partly resided in the French
reinsurance system for housing loans, which ensured that banks’ credit risks were limited should defaults rise
and/or house prices decline (HCSF, 2016, 2017a, 2018). However, in 2019 the FSC expressed increased concerns
about more lenient credit granting practices, which in combination with rising household indebtedness required
“renewed vigilance” (HCSF, 2019c, p. 63). Hence, macroprudential authorities identified an increase in stability
risks related to real estate, but had yet to engage in strong policy action to tackle them.
The FSC’s divided stance was the result of the MoF being concerned over housing access for young couples
and low income-groups, while the BdF was concerned about the “red hot” real estate market (Interview 11) and
the strong signs of a “bubble” (HCSF, 2019c). The BdF tried to convince other FSC members of the need to act
(Interview 10) through data collection, interpretation, and analysis, in order to overcome the MoF’s opposition to
measures which might hinder young couples’ access to homeownership. Since the summer of 2018, the debate
within the FSC coalesced around the need to do something, but what exactly was still debated.

5.2. From debate to regulatory action

In this context, the ESRB-warning of June 2019 (ESRB, 2019a, p. 62) was a helpful external validation of the
FSC’s internal worries. The ESRB argued that household indebtedness was rising dangerously, reflected in rising
LTI and DSTI ratios. The ESRB-warning and its suggestion to act tipped the scales in the domestic debate in
favor of more action (Interview 10). As in the German case, BdF-economists were not surprised by this warning,
as they work with the ESRB on a daily basis. In fact, the ESRB’s BdF-members had actively encouraged the warn-
ing, considering it a way to convince the MoF (Interview 8; 10; 11). A BdF-official stressed that “you do not get a
warning at the ESRB unless you want it” (Interview 10), pointing out that they had initially contested the ESRB
measurements but over time agreed with the ESRB and started to see a warning as a helpful tool vis-à-vis
the MoF.
© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd. 9
 All this culminated in a special FSC-report on residential housing published in October 2019 (HCSF, 2019a).9
This was the basis for a public consultation, involving a dialogue with banks to agree on common definitions for
the specification of a DSTI limit. In December 2019 the FSC approved the BdF’s proposal to introduce a DSTI
limit of 33% and to reduce the maximum length of amortization, subject to certain exceptions (HCSF, 2019b). To
alleviate the MoF’s concerns about housing access, this measure provided some margin of flexibility that was par-
ticularly aiming at young couples10 and was implemented on a comply-or-explain basis rather than through a
legally binding measure, giving some wiggle room to banks (Interview 10). Introducing these amendments
allowed for the MoF to consent to the measure, as its political concerns were taken into account.
Unsurprisingly, private sector actors, in particular realtors, complained that these measures hampered peo-
ple’s housing access (In &Fi, 2020). In response, the FSC published an impact study attempting to show the mea-
sures’ effectiveness, arguing that there was no evidence for banks excessively restricting credit access, and there
seemed to be an improvement in credit standards (HCSF, 2020b). The FSC also adopted a more forceful tone,
insisting that “the continuation of this overall dynamic [of credit expansion] does not appear sustainable”
(HCSF, 2020a, p. 67) and stating that rising housing prices rather than borrowing limits hamper peoples’ (future)
ability to buy a house. This shows that the FSC’s discourse had changed in line with the ESRB-warning. In 2021,
the FSC prolonged the measure and made it applicable to every bank, and indicating that it planned to turn it
into a legal requirement (HCSF, 2021).
These rather stringent countercyclical measures were the outcome of a long process of both epistemic and
political consensus-formation, initiated by the BdF and gaining urgency through the ESRB-warning. The FSC’s
institutional set-up, with the BdF being able to issue public recommendations, pressured the MoF to find an
acceptable countercyclical action, which was found in tough DSTI measures, but implemented on a comply-or-
explain basis. The French authorities thus reacted late, but rather forcefully to the real estate boom.

6. Macroprudential action in the Netherlands

Between 1990 and 2008, Dutch mortgage debt levels as a percentage of GDP rose from 40% to 110%, while hous-
ing prices doubled. The crisis led to a bust, with average housing prices dropping by 20% and one-million house-
holds (out of three-million with a mortgage) having an “underwater” mortgage. In response, in 2012 the
government introduced stricter LTV and LTI limits through a public regulation—before subject to self-regula-
tion—with any subsequent changes being determined by the MoF (Ministry of Finance, 2012).11 The LTV limit
was set at 106%, which would be annually reduced by 1% until reaching 100% in 2018. Additionally, the govern-
ment made the mortgage interest deductibility facility somewhat less generous, and for new mortgages it made
amortization a precondition for this facility (Interview 15).
While the government thus strengthened stability considerations in housing policies, it refrained from struc-
turally empowering financial supervisors. In 2012, the MoF set up a FSC, consisting of representatives from the
DNB (the central bank, acting as host institution), AFM (the financial conduct authority) and the MoF, while
external public parties could participate as observers on particular topics. It was tasked with signaling financial
stability risks and issuing recommendations, yet two facets seriously weakened their potential power. First, they
had a non-binding nature: DNB, AFM, and the MoF were free not to act upon them. Second, and more impor-
tantly, while the MoF was formally a committee member, it would not participate in the decision-making process,
indicating that “the Minister of Finance must always be free to make his own decisions on policy matters”
(Ministry of Finance, 2012, p. 5).
An MoF representative recalls that DNB preferred a different set-up: “DNB of course wanted the Committee
to have strength, so it insisted on having the MoF on board […]. It wanted to ensure that the Ministry of Finance
would feel committed to the outcome of the deliberations. But we said that this is not compatible with the
ministry’s accountability to Parliament. You cannot have public servants in such a committee taking very intru-
sive measures” (Interview 20). So, the MoF ensured that it would not be implicated by the FSC’s recommenda-
tions by abstaining from the decision-making process. The FSC’s (non-binding) recommendations would
therefore de facto be DNB and AFM recommendations.
While the DNB gained control over the capital-based measures in the EU’s CRD IV package, it worried that
macroprudential considerations would be side-lined in borrower-based measures (Interview 13). Arguing that
10 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
“restrictions on LTV and LTI ratios are fundamental instruments from a macroprudential perspective,” the
DNB (2013: 10) asked the MoF in 2013 for a formal right of recommendation in the calibration of those instru-
ments. International organizations also pushed for reform: the ESRB (2014) suggested to give the FSC’s recom-
mendations an “act-or-explain”-status, while the FSB (2014) proposed to make the FSC responsible for setting
the borrower-based tools. These efforts led nowhere, however: these tools’ big impact on housing market access
made the MoF—and Parliament—wary of relinquishing control (Interview 14).

6.1. Futile pleas for more stringent LTV limits

Lack of political commitment and supervisors’ weak institutional position on borrower-based measures were evi-
dent in the post-2013 debate on the LTV limit. The DNB fervently argued that this limit should continue its
decline after reaching 100% in 2018, receiving support from the AFM domestically and by the OECD (2014) and
the IMF (2014) internationally. In 2013 the MoF seemed open to the idea of a further reduction: “if the housing
market recovers robustly, further proposals will be made about the ultimate LTV ratio and the steps toward this
level after 2018” (Ministry of Finance, 2013). The FSC (2013) thus indicated that “further analysis of the desirable
future financing of residential real estate would be necessary.”
Yet, this idea was politically very controversial. The biggest government party—the right wing VVD party—
was opposed (Interview 14). Internally, the MoF was also not convinced, as officials considered that the incentive
to amortize mortgage loans (a precondition for the tax benefits) reduced the need for a lower LTV limit, while
the costs of further lowering the LTV limit from a welfare perspective were considered high (Interview 18). The
Ministry of the Interior (MoI), also responsible for housing issues, considered that an LTV below 100% would
hamper first-time buyers with little savings, forcing them onto the expensive commercial rental market which
would limit their ability to save money for a house (Interview 14).
While the ministries did not need to fear the FSC’s recommendations, they were still reluctant to be consid-
ered the parties ignoring a broad consensus that a lower LTV limit was desirable. They therefore aimed to pre-
empt a consensus by requesting the Bureau for Economic Policy Analysis (CPB)—an observer in the FSC that
had been critical of LTV reductions during debates (Interview 13)—to investigate the macro-economic conse-
quences of a further LTV reduction (Interview 14). Unsurprisingly, the CPB’s (2015) study argued that this would
have negative economic consequences, while financial stability benefits would be negligible, suggesting “other
measures, particularly eliminating tax benefits” (Interview 20). According to an MoF official, a further reduction
would have been unlikely even without the CPB study, but it was still an important blow to DNB’s narrative
(Interview 18). Instead of a process of epistemic consensus-formation, the ministries explicitly aimed for episte-
mic fragmentation. A DNB official indicated that these disagreements also reflected a problem inherent to macro-
prudential policy: “the short-term costs are easily quantifiable, but long-term benefits in the sense of a more
stable housing market, or a more stable economy, that is very difficult to quantify and make a case for”
(Interview 13).
Expecting limited enthusiasm, the FSC’s (2015) recommendation to continue the annual 1% reduction until
the LTV limit reached 90% in 2028 was explicitly addressed to the next government. The incumbent government
thus deferred the issue, stating that existing measures had created clarity and thereby contributed to housing mar-
ket stability. The institutional set-up allowed the MoF to deviate from the FSC’s recommendation, and it used the
CPB’s study to flag that even macroeconomic experts disagreed (Ministry of Finance, 2015). The government also
dismissed the ESRB’s (2016) warning about vulnerabilities in the mortgage market issued the following year,
arguing that the implemented reforms “will continue to contribute to a more moderate growth of household
indebtedness and its associated risks” (Ministry of Finance, 2016). The subsequent government did not do any-
thing on the LTV limit, keeping it at 100% from 2018 onwards.

6.2. Limited action to increase banks’ resilience

From 2018 onwards, DNB got increasingly worried about the build-up of systemic risks on the real estate market.
With no action expected on borrower-based limits, it focused on banks’ risk weights for mortgages exposures,
considering that they were too low from a macroprudential point-of-view, and that they had procyclical effects
(Interview 13).
© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd. 11
 The ESRB was simultaneously investigating the Dutch housing market. In June 2019, it issued a recommenda-
tion to activate capital-based measures to increase banks’ resilience and to tighten the borrower-based limits
(ESRB, 2019d). A DNB representative recalls that DNB had partly influenced this recommendation: “I was an
ESRB member, so I fed the ESRB discussions preceding this recommendation with the Dutch position, although
we were not alone in our concern about the Dutch housing market” (Interview 22). It was therefore happy with
this recommendation: “Macroprudential policy, in general, is difficult to get accepted politically, as it conflicts
with other societal goals […] And so it helps when an agency like the ESRB issues such a recommendation”
(Interview 22). An MoF official concurs that international recommendations are not taken lightly: “The
Netherlands in general wants to comply with international standards […] And everybody reads these recommen-
dations: the media, politicians, the Parliament, scholars, citizens. And this puts pressure on us” (Interview 21).
After FSC deliberations, extensive research, a formal check with the MoF and a public consultation, the DNB
announced in October 2019 that it would activate CRR Article 458 to induce a moderate increase in mortgage
risk-weights. A DNB official asserts that it did not have the ambition to limit the housing market boom: “if you
want to cool it down it is much more effective to do that through LTV or LTI ratios. And changing risk weights
doesn’t help much in this regard, because it has a very small effect on the pricing” (Interview 13). But the DNB
knew that the borrower-based norms would not be modified: “the debate on the LTV and lending standards was
over, there was very little room for manoeuvre and limited willingness in The Hague to do something about this”
(Interview 13). Indeed, the MoF responded negatively to the ESRB’s recommendation to tighten these measures:
“invoking Article 458 to change risk-weights is worlds apart from tightening LTV and LTI measures, politically
speaking […]. LTV and LTI measures are still very sensitive within the government” (Interview 17). While nei-
ther the MoF nor the MoI was particularly happy about activating Article 458, the limited effects on borrowers
implied they considered it politically unproblematic (Interviews 14; 17).
This timid response was thus the result of political unwillingness to constrain housing market access in com-
bination with an ideational dissensus on the desirability of stronger borrower-based measures. The FSC’s institu-
tional set-up allowed the MoF to escape from being implicated by its recommendations; a feasible strategy given
the limited political support for stronger measures. The DNB’s epistemic authority was challenged by the CPB,
and it therefore saw no other option but to use its own toolset. The eventual measure, however, was aimed at
banks’ resilience, not at stopping the housing market boom. Hardly the outcome of a consensus-building exercise,
it was DNB’s unilateral answer to the failure to achieve agreement on tougher borrower-based instruments.

7. Conclusion: The strenuous path to consensus-formation

This paper has compared how FSCs in three EU countries have reacted to signs of the build-up of systemic risks
in their real-estate sector by assessing their use of precautionary, countercyclical policies. We posited that
implementing such measures requires both epistemic and political consensus, thus necessitating a connection
between technocratic expertise and political authority, which the FSCs are supposed to achieve. Instead of swift
responses to identified risks, we found that macroprudential action required extensive preparation to ensure sup-
port by all FSC members. All cases thus show an extensive process of consensus-formation mediated through
these FSCs. Although all countries took steps, the Netherlands and Germany opted for more symbolic capital-
based measures, while only France introduced borrower-based measures with arguably more bite (see Table 2).
This difference was confirmed by the ESRB assessment of governments’ reactions to its 2019 recommendations,
with France’s policy response deemed “appropriate and sufficient,” but actions by Germany and the Netherlands
only “partially sufficient” (ESRB, 2022, p. 4).
We have argued that the governance structures and legal prerogatives are crucial to understand these differ-
ences. They do so by affecting the consensus-formation process, both on the epistemic and political dimension.
In France, the political side feels implicated by the FSC deliberations: as the central bank can issue public recom-
mendations that are then accepted or rejected by the FSC, the MoF risks being first publicly called out on the
need for countercyclical measures and then outvoted. While the likelihood of this threat to materialize is low, as
it would mean a public display of frictions between the central bank and the MoF, the threat nevertheless incen-
tivizes the MoF to engage in serious negotiations. In Germany, all FSC members can make recommendations,
but in the voting process the MoF and the subordinated BaFin are ultimately in charge, with the Bundesbank
12 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
TABLE 2 Main variables and key findings
The FSC’s institutional Ideational Political consensus-formation Measures taken Assessment of
configuration consensus- the measures
formation
Germany Political side implicated Slow Weak compromise, driven by Activation of the Weak
MoF has a strong position the predominance of the countercyclical
vis-à-vis Bundesbank MoF in the Committee in buffer (0.25%)
FSC has a strong institutional terms of voting
position.
France Political side implicated Slow Compromise, driven by the Loan-to-income Medium-Strong
MoF has an equal position incapacity of political actors limit and
vis-à-vis Banque de France to singlehandedly veto the amortization
FSC has a strong institutional decisions taken and hence requirements,
position incentivizing actors to find a activation of the
compromise countercyclical
buffer (0.5%)
Netherlands Political side not implicated. Non-existent No compromise, as MoF is More stringent Weak
DNB has a strong position in not bound by FSC decisions capital
FSC requirements for
FSC has a weak institutional banks’ mortgage
position exposures, imposed
by unilateral action
of the Dutch
Central Bank

having a much more muted role. Furthermore, endorsed recommendations still have to be implemented by the
BaFin, giving its judicial concerns and susceptibility for the banking lobby’s concerns additional weight. In the
Netherlands, borrower-based measures were kept out of the FSC’s reach, instead remaining the sole prerogative
of the MoF. By abstaining from the FSC’s decision-making process, the MoF ensured that it would not be impli-
cated by its recommendations, thus limiting the urgency to engage in a consensus-formation process.
These different institutional set-ups engendered different epistemic consensus-formation dynamics, thereby
influencing whether a shared sense of the problem and solution emerged. The French case shows a steady appre-
ciation among all FSC members that deteriorating credit standards could harm financial stability, which coupled
with credit market data allowed technocrats to convince the political side of the need for action. In Germany, the
BaFin persistently challenged the Bundesbank’s pleas for action by pointing at the lack of robust data regarding
developments of banks’ credit standards. The MoF, after a long process of generating evidence, ultimately dis-
missed BaFin’s concerns and sided with the Bundesbank. In the Netherlands, the relevant ministries successfully
obstructed consensus-formation by encouraging an observer within the FSC—the Bureau for Economic Policy
Analysis—to undermine the DNB’s story that lower LTV limits would be beneficial, pointing at limited evidence
for the benefits and ample evidence for the costs.
The FSC’s configuration and institutional position also shaped the political dynamics. In general, governments
are reluctant to tighten borrower-based measures in a boom due to concerns regarding housing accessibility. Yet,
in France actors’ incentives for compromise encouraged a search for a politically feasible measure, finding this in
a borrower-based measure allowing exceptions for first-time buyers. In Germany, the housing boom and rental
price rises made housing so politically salient that the political side could only accept a symbolic measure. The
Bundesbank’s weakness within the FSC implied it had limited power to push for a stronger measure. In the
Netherlands, the ministries argued that restricting access through an LTV below 100% would condemn first-time
buyers to the expensive commercial rental sector, further limiting their ability to save for the required down-pay-
ment. While the DNB tried to alleviate concerns by proposing a step-wise decrease, the MoF’s ability to abstain
from the FSC’s recommendation implied that no political compromise was sought.

© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd. 13
 These domestic political economy issues interact with the “interlocked governance” of EU decision-making,
whereby the ESRB acts as a conduit that facilitates epistemic and political consensus-formation, even if to a
somewhat limited degree. The ESRB has only soft-powers, but acts as an important tool to convince domestic
political actors. Central banks, which are both members of the national macroprudential authorities and of the
ESRB, engage in a two-level game, shaping the timing and content of the ESRB’s warning in order to influence
national dynamics. However, although these recommendations appear to strengthen the case for some action,
they do not in themselves lead to strong action. Instead, its impact is mediated by the national configuration. In
both the Netherlands and Germany, the measures finally adopted allowed the ministries to demonstrate to the
ESRB (read: their international peers) that they take these warnings seriously; yet the ESRB (2022) subsequently
considered these measures too weak.
Overall, the comparison shows that countercyclical action in FSCs is characterized by a protracted process of
consensus-building, which in turn is shaped by the national institutional set-up. It suggests that only when the
political side is implicated by the deliberations within the FSC that the necessary epistemic and political consen-
sus to bring about politically painful decisions is achieved. This is possible when the political agents lose their
absolute veto power and are therefore forced to engage technocrats in an open and substantial debate in the com-
mittee. If the political side however is unconstrained by these deliberations, or can shape their outcome, chances
for meaningful action decrease. As such, these institutional features matter not so much because they shape
decision-making at any point in time, but rather because they shape the process of epistemic and political
consensus-formation.
While this protracted process makes sense when we consider countercyclical policy’s controversial nature, it
simultaneously pre-empts timely action. After all, the measures were finally agreed upon only in 2019, making it
doubtful whether they could still significantly mitigate the build-up of systemic risks. This introduces the question
what might increase the speed and forcefulness of politico-technocratic committees’ decisions. This is all the more
important as this question not only applies to real estate risks, but also to issues such as climate change. Tackling
such issues will likely increase the importance of committees (such as FSCs) that bring together political actors
and technocrats to generate the necessary epistemic and political consensus for action. It would hence be particu-
larly fruitful to further explore how these institutions’ set-up shapes their potential for addressing these and other
pressing societal challenges.

Acknowledgments
The authors would like to thank Cyril Benoit, Etienne Lepers, Laura Morales, Len Seabrooke, Paulus Wagner, the
members of the Sciences Po CEE Pre-publication workshop as well as participants at the SAFE Workshop “EMU
at a cross-roads.”

Conflict of interest
No conflict of interest is reported.

Data availability statement

The data that support the findings of this study are available from the corresponding author upon reasonable
request.

Endnotes
1
Moschella and Pinto (2021) report that 36% of the countries in their sample of 53 countries have made these committees
formally responsible for macroprudential policy, and in the EU, 12 of the 27 member states have done this.
2
Within this literature, Benoît (2021) identifies a divide in which one strand zooms in on political influence on regulators’
actions (e.g., Hanretty & Koop, 2013; Maggetti, 2007), while another strand focusses on regulators’ agency, including its
ability to withstand capture by rule-takers (Carpenter & Moss, 2013) or mobilize regulatory intermediaries to achieve
public policy goals (Abbott et al., 2017).
14 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
 3
Gesetz zur Überwachung der Finanzstabilität (Finanzstabilitätsgesetz—FinStabG) from 28 November 2012
(Bundesgesetzblatt I, S. 2369).
4
Such data collection is a legal prerequisite in Germany to guarantee that the state’s intervention in the economy is
proportionate.
5
This work of persuasion was also reflected in the Bundesbank’s changed language after November 2017, calling for a close
monitoring of house price developments as appreciations beyond fundamentals had continued (Deutsche
Bundesbank, 2017, p. 47f). From February 2018, it more or less explicitly pushed for CCyB activation, stressing in
November 2018 that other EU countries had activated the CCyB without systemic risk indicating any need for action
(Deutsche Bundesbank, 2018, p. 50).
6
https://www.bundesbank.de/resource/blob/797750/ab7a99676cb65ae024ef8d51deade90f/mL/2019-05-27-afs-anlage-empfehlung-
data.pdf.
7
Apart from the political scandal, such public disagreement would effectively imply the end of the FSC, as its functioning
requires cooperation between its members.
8
xxx.
9
The report mentions the ESRB warning and points out that its analysis is in line with the latter. In particular, it expresses
worries about the extension of the maturity, the marked decline in down-payments as well as the increase in the DSTI
ratio.
10
The worry over housing access by the MoF was reflected in the FSC’s final recommendation, providing a margin of devia-
tion of 15% for banks, 75% of which were reserved to young couples (s. HCSF, 2019b).
11
Technically the Netherlands has a DSTI limit instead of a LTI limit, but everyone refers to it as an LTI limit.

References
Abbott, K. W., Levi-Faur, D., & Snidal, D. (2017). Theorizing regulatory intermediaries: The RIT model. The Annals of the
American Academy of Political and Social Science, 670(1), 14–35.
ACPR. (2018). Le financement de l’habitat en 2017. Autorité de contrôle prudentiel et de résolution.
AFS. (2014). Erster Bericht an den Deutschen Bundestag zur Finanzstabilität in Deutschland. Ausschuss für Finanzstabilität.
AFS (2015) Empfehlung vom 30. Juni 2015 zu neuen Instrumenten für die Regulierung der Darlehensvergabe zum Bau oder Erwerb
von Wohnimmobilien AFS/2015/1. https://www.bundesbank.de/resource/blob/602022/9389b39ffda718f644732a26c84a2e39/mL/
2015-06-30-afs-empfehlungen-341802-download.pdf
AFS. (2020). Siebter Bericht an den Deutschen Bundestag zur Finanzstabilität in Deutschland. Ausschuss für Finanzstabilität.
Agur, I., & Sharma, S. (2013). Rules, discretion, and macro‐prudential policy. IMF Working Paper 13/65.
Aikman, D., Haldane, A. G., & Nelson, B. D. (2015). Curbing the credit cycle. Economic Journal, 125(525), 1072–1109.
Ansell, B. (2019). The politics of housing. Annual Review of Political Science, 22, 165–185.
Arena, M., Chen, T., Choi, S. M., Geng, N., Gueye, C. A., Lybek, T., Papageorgiou, E., & Zhang, Y. S. (2020). Macroprudential
policies and house prices in Europe. IMF Departmental Papers, 2020(004), 1–34.
Baker A (2017) Political Economy and the Paradoxes of Macroprudential Regulation. SPERI Working Paper 40.
Baker, A. (2018). Macroprudential regimes and the politics of social purpose. Review of International Political Economy, 25(3),
293–316.
BCBS. (2010). Basel III: International regulatory framework for banks. Basel Committee for Banking Supervision.
Beach, D., & Pedersen, R. B. (2019). Process-tracing methods: Foundations and guidelines. University of Michigan Press.
Belfrage, C., & Kallifatides, M. (2018). Politicization of macroprudential regulation: The case of Sweden. Environment and
Planning A, 50(3), 709–727.
Benoît, C. (2021). Politicians, regulators, and regulatory governance: The neglected sides of the story. Regulation & Gover-
nance, 15, S8–S22. https://doi.org/10.1111/rego.12388
Borio C (2018). Macroprudential frameworks: Experience, prospects and a way forward. Speech at the BIS General Meeting on
24 June 2018, Basel.
Bundesgesetzblatt (2017) Finanzaufsichtsrechtergänzungsgesetz vom 6. Juni 2017, Bundesgesetzblatt BGBl. Teil I, Jg. 2017,
Nr. 34, Bonn, 9. Juni 2017, S. 1495-1502.
Bundestag. (2017) Gesetz gegen die Gefahren von Immobilienblasen beschlossen. https://www.bundestag.de/dokumente/
textarchiv/2017/kw04-de-finanzaufsichtsrechtergaenzungsgesetz-489334
Callon, M., Lascoumes, P., & Barthe, Y. (2002). Acting in an uncertain world: An essay on technical democracy. MIT Press.
Carpenter, D., & Moss, D. A. (Eds.). (2013). Preventing regulatory capture: Special interest influence and how to limit it. Cam-
bridge University Press.
Coban, M. K. (2021). Coordinating monetary policy and macroprudential policy: Bureaucratic politics, regulatory intermedi-
ary, and bank lobbying. Public Administration Earl. https://doi.org/10.1111/padm.12744
CPB. (2015). De economische effecten van een verdere verlaging van de LTV-limiet. CPB Notitie; 28 mei 2015. Centraal
Planbureau.
Deutsche Bundesbank. (2014). Financial stability review 2014. Deutsche Bundesbank.
© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd. 15
Deutsche Bundesbank. (2017). Financial stability review 2017. Deutsche Bundesbank.
Deutsche Bundesbank. (2018). Financial stability review 2018. Deutsche Bundesbank.
Deutsche Bundesbank. (2019). Financial stability review 2019. Deutsche Bundesbank.
Dietsch, M., & Welter-Nicol, C. (2014). Do LTV and DSTI caps make banks more resilient? Débats économiques et financiers
13. Banque de France.
DNB. (2013). DNB-wetgevingswensen 2013. De Nederlandsche Bank.
ECB. (2019). Macroprudential policy at the ECB: Institutional framework, strategy, analytical tools and policies. ECB.
Edge R, Liang JN (2019) New Financial Stability Governance Structures and Central Banks. Hutchins Center Working
Paper #50.
ESRB. (2014). ESRB recommendation on the macro-prudential mandate of national authorities (ESRB/2011/3). Follow-up report
– Overall assessment. European Systemic Risk Board.
ESRB. (2016). Warning of the European Systemic Risk Board of 22 September 2016 on medium-term vulnerabilities in the resi-
dential real estate sector of The Netherlands (ESRB/2016/10). European Systemic Risk Board.
ESRB. (2019a). Warning of the European systemic risk board of 27 June 2019 on medium-term vulnerabilities in the residential
real estate sector in France. European Systemic Risk Board.
ESRB. (2019b). Warning of the European systemic risk board of 27 June 2019 on medium-term vulnerabilities in the residential
real estate sector in Germany. European Systemic Risk Board.
ESRB. (2019c). Vulnerabilities in the residential real estate sectors of the EEA countries September 2019. European Systemic
Risk Board.
ESRB. (2019d). Recommendation of the European Systemic Risk Board of 27 June 2019 on medium-term vulnerabilities in the
residential real estate sector in Netherlands. European Systemic Risk Board.
ESRB. (2022). Vulnerabilities in the residential real estate sectors of the EEA countries. ESRB.
Flinders, M., & Buller, J. (2006). Depoliticisation: Principles, tactics and tools. British Politics, 1, 293–318.
FSB. (2014). Peer review of The Netherlands. Financial Stability Board.
FSB (2020). Peer Review of Germany Review Report. https://www.fsb.org/wp-content/uploads/P270720.pdf
FSC. (2015). Recommendation from the Financial Stability Committee on the LTV limit after 2018. FSC.
Fuller, G. W., Johnston, A., & Regan, A. (2020). Housing prices and wealth inequality in Western Europe. West European Pol-
itics, 43(2), 297–320.
Goodhart, L. M. (2015). Brave new world? Macro‐prudential policy and the new political economy of the federal reserve.
Review of International Political Economy, 22(2), 280–310.
G20 (2009) Declaration on strengthening the Financial System. London Summit, 2 April 2009.
Handke, S. (2012). Die Ruhe nach dem Sturm – Steuerungskonflikte als Hemmnis für institutionellen Wandel in der
deutschen Finanzmarktaufsicht. Leviathan, 40(1), 24–51.
Hanretty, C., & Koop, C. (2013). Shall the law set them free? The formal and actual independence of regulatory agencies. Reg-
ulation & Governance, 7(2), 195–214.
Hartmann, P. (2016). Real estate markets and macroprudential policy in Europe. Journal of Money, Credit and Banking, 47(1),
69–80.
HCSF. (2016). Rapport Annuel 2016. Haut Conseil de Stabilité Financière.
HCSF. (2017a). Rapport Annuel 2017. Haut Conseil de Stabilité Financière.
HCSF. (2017b). Etat des lieux de l’endettement des agents privés non financiers. Haut Conseil de Stabilité Financière.
HCSF. (2018). Rapport Annuel 2018. Haut Conseil de Stabilité Financière.
HCSF. (2019a). Diagnostic des risques dans le secteur de l’immobilier résidentiel. Haut Conseil de Stabilité Financière.
HCSF. (2019b). Recommandation N R-HCSF-2019-1 relative aux évolutions du marché immobilier résidentiel en France en
matière d’octroi de credit. Haut Conseil de Stabilité Financière.
HCSF. (2019c). Rapport Annuel. Haut Conseil de Stabilité Financière.
HCSF. (2020a). Rapport Annuel. Haut Conseil de Stabilité Financière.
HCSF. (2020b). Premier bilan du crédit immobilier en France en 2020 et des effets de la recommandation R-2019-1 du Haut
Conseil de stabilité financière. Haut Conseil de Stabilité Financière.
HCSF. (2021). Recommandation N R-HCSF-2021-1 relative à l’octroi de crédits immobiliers résidentiels en France. Haut Con-
seil de Stabilité Financière.
Helleiner, E. (2014). The status quo crisis. Global financial governance after the 2008 meltdown. Oxford University Press.
IMF. (2014). Kingdom of the Netherlands – Netherlands. 2014 Article IV Consultation – Staff report, press release, and state-
ment by the Executive Director for The Netherlands. International Monetary Fund.
IMF. (2014). Kingdom of the Netherlands – Netherlands. 2014 Article IV Consultation – Staff report, press release, and state-
ment by the Executive Director for The Netherlands. International Monetary Fund.
IMF‐FSB‐BIS. (2016). Elements of effective macroprudential policies: Lessons from international experience. Washington DC:
IMF Press.
In&Fi. 2020. Achat immobilier: les recommandations du HCSF et leurs conséquences sur l’accès au credit. https://www.
inandfi-credits.fr/blog/35331-achat-immobilier-recommandations-du-hcsf-et-consequences-sur-acces-au-credit/
Johnston, A., Fuller, G. W., & Regan, A. (2020). It takes two to tango: Mortgage markets, labor markets and rising household
debt in Europe. Review of International Political Economy, 28(4), 843–873. https://doi.org/10.1080/09692290.2020.
1745868
Krippner, G. (2011). Capitalizing on crisis. Princeton University Press.
Lepers E (2021) Who is best at taking away the punch bowl? Institutional arrangements and macroprudential activity. Work-
ing Paper.

16 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.
Levi-Faur, D. (2005). The global diffusion of regulatory capitalism. The Annals of the American Academy of Political and Social
Science, 598(1), 12–32.
Lombardi, D., & Moschella, M. (2017). The symbolic politics of delegation: Macroprudential policy and independent regula-
tory authorities. New Political Economy, 22(1), 92–108.
Maggetti, M. (2007). De facto independence after delegation: A fuzzy-set analysis. Regulation & Governance, 1(4), 271–294.
Majone, G. (2011). Strategic issues in risk regulation. In D. Levi-Faur (Ed.), Handbook on the politics of regulation (pp. 295–
310). Edward Elgar Publishing.
McPhilemy, S. (2016). Integrating macro-prudential policy: Central banks as the ‘third force’ in EU financial reform. West
European Politics, 39(3), 526–544.
Mertens, D. (2015). Erst kaufen, dann sparen? Campus.
Ministry of Finance. (2012). Order of the Minister of Finance of 2 November 2012 establishing the Financial Stability Commit-
tee. Reference: FM2012/1193M. MoF.
Ministry of Finance. (2013). Kabinetsvisie Nederlandse bankensector, 32013, nr. 35. MoF.
Ministry of Finance. (2015). Wet- en regelgeving financiële markten. BRIEF VAN DE MINISTER VAN FINANCIËN. 32 545,
nr. 38. MoF.
Ministry of Finance. (2016). Letter to the ESRB – Subject warning ESRB/2016/10. MoF.
Moschella, M., & Pinto, L. (2021). The multi-agencies dilemma of delegation: Why do policymakers choose one or multiple
agencies for financial regulation? Regulation & Governance. https://doi.org/10.1111/rego.12435
OECD. (2014). OECD economic surveys – Netherlands – April 2014. Organisation for Economic Co-operation and
Development.
Schammo, P. (2019). Inaction in macro-prudential supervision: Assessing the EU’s response. Journal of Financial Regulation,
5(1), 1–28.
Stellinga, B. (2020). The open-endedness of macroprudential policy. Endogenous risks as an obstacle to countercyclical finan-
cial regulation. Business and Politics, 22(1), 224–251.
Stellinga, B. (2021). The rise and stall of EU macro-Prudential policy. An empirical analysis of policy conflicts over Financial
stability, market integration, and National Discretion. Journal of Common Market Studies, 59, 1438. https://doi.org/10.
1111/jcms.13195
Stellinga, B. & Muegge, D. (2017). The regulator’s conundrum. How market reflexivity limits fundamental financial reform.
Review of International Political Economy, 24(3), 393–423.
Thatcher, M. (2002). Delegation to independent regulatory agencies: Pressures, functions and contextual mediation. West
European Politics, 25(1), 125–147.
Thiemann, M. (2019). Is resilience enough? The macroprudential reform agenda and the lack of smoothing of the cycle. Public
Administration, 97(3), 561–575.
Thiemann, M., Melches, R., & Ibrocevic, E. (2021). Measuring and mitigating systemic risks: how the forging of new alliances
between central bank and academic economists legitimize the transnational macroprudential agenda. Review of Interna-
tional Political Economy, 28(6), 1433–1458.
Trampusch, C., & Palier, B. (2016). Between X and Y: How process tracing contributes to opening the black box of causality.
New Political Economy, 21(5), 437–454.
Tucker, P. (2018). Unelected power. Princeton University Press.

ANNEX: Interviews
Germany
1: Research Assistant Deutscher Bundestag; 08-06-2019
2: Bundesbank official; 10-10-2019
3: BaFin/Bundesbank official; 10-01-2020
4: Bundesbank official; 18-06-2021
5: Bundesbank official; 09-07-2021
6: MoF official; 20-07-2021
7: Bundesbank officials; 26-08-2021
France
8: BdF official; 04-04-2021
9: BdF official; 15-05-2021
10: BdF official; 20-05-2021
11: Treasury official; 14-06-2021
The ESRB
12: ESRB officials; 06-07-2021
The Netherlands
13: DNB official; 24-03-2021
© 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd. 17
 14: MoF/MoI official; 30-03-2021
15: MoF official; 01-04-2021
16: AFM official; 07-04-2021
17: MoF official; 14-04-2021
18: MoF official; 14-04-2021
19: MoF official; 30-04-2021
20: CPB official; 20-05-2021
21: MoF officials; 01-06-2021
22: DNB official; 07-06-2021

18 © 2022 The Authors. Regulation & Governance published by John Wiley & Sons Australia, Ltd.

View publication stats