Featured Product

    IMF Publishes Reports on 2017 Article IV Consultation with Germany

    July 07, 2017

    IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with Germany. The IMF assessment highlights that regulatory capital in the banking sector is adequate, but profitability continues to be weak, reflecting structural factors, some crisis legacies, and the low interest rate environment. Low interest rates, if prolonged, would also negatively affect life insurers, given their extensive reliance on guaranteed products.

    The staff report highlights that German banks are generally well-capitalized in risk-weighted terms, but leverage ratios are low in international comparison, especially for large private banks. The number of banks and branches has declined by about 15% since the financial crisis and this trend is set to continue, as the cost-to-income ratio remains on an uptrend in recent years—partially reflecting higher regulatory costs. Following a second year of large losses, Germany’s global systemically important bank substantially increased capital in March-April 2017 and announced a new restructuring strategy. This is a welcome development and has resulted in a decline in the bank’s CDS spreads. However, it is too early to assess whether the new strategy will be able to sustainably return the bank to profitability. The 2016 Germany FSAP pointed out that a formal coordination framework among authorities that would be involved in crisis management (ECB, the Systemic Risk Board, and the competent German authorities) had yet to be developed, but limited progress has been made in this area till now. The authorities also expressed strong commitment to the new EU bank resolution framework and the concept of bail-in. They also shared staff’s concerns about the need to ensure operational readiness in a systemic crisis, but noted that coordination among national and European authorities still needs to be tested in real-time simulation exercises.

     

    The assessment also reveals that solvency buffers of life insurers look comfortable and this owes much to the Solvency II transitional measures. At 286% (on aggregate) at the beginning of 2016, the solvency capital requirement ratio (SCR) for the German life insurance industry was well above the required (100%) minimum and among the highest in Europe. However, some caution is in order when interpreting this figure. Nearly 70% of German life insurers are making use of Solvency II transitional measures. Without these measures, about a third of reporting LI companies (26 insurers) would not have reported sufficient own funds in the first quarter of 2016. The 2016 FSAP and the more recent EIOPA stress tests showed that the German life insurance sector would be severely negatively affected in a “low for long” situation due to large negative duration gaps and the prevalence of guaranteed returns products. New legislation introducing macro-prudential instruments for the real estate market was approved, but left the toolkit incomplete and important data gaps unaddressed. The new legislation broadens the macro-prudential toolkit to include loan-to-value and amortization requirements, but does not include either debt-to-income or debt-service-to-income limits—instruments designed to limit borrower vulnerability to income and interest rate shocks and ensure affordability. Most importantly, the new law does not include any provision for a granular, loan-by-loan database, a central tenet of the past staff recommendation to ensure effective implementation of macro-prudential tools.

     

    Related Links

    Staff Report (PDF)

    Selected Issues Report (PDF)

    Keywords: IMF, Germany, Europe, Banking, Insurance, Solvency II, Article IV, Anacredit

    Featured Experts
    Related Articles
    News

    SEC Finalizes Capital and Margin Requirements for Security-Based Swaps

    SEC adopted a package of rules and rule amendments to establish capital, margin, and segregation requirements for security-based swaps, under Title VII of the Dodd-Frank Act.

    August 22, 2019 WebPage Regulatory News
    News

    ECB Revises Prudential Provisioning Expectations for New NPEs

    ECB is revising its supervisory expectations for prudential provisioning of new non-performing exposures (NPEs) specified in the “Addendum to the ECB Guidance to banks on non-performing loans” (Addendum)

    August 22, 2019 WebPage Regulatory News
    News

    CFTC Proposes to Revise Information Collection on Margin Requirements

    CFTC is requesting comments on the burdens associated with certain aspects of the Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants (final rule).

    August 21, 2019 WebPage Regulatory News
    News

    FASB to Delay Effective Date for Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant all insurance companies that issue long-duration contracts, such as life insurance and annuities, additional time to apply the standard that addresses this area of financial reporting.

    August 21, 2019 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.9

    EBA published phase 2 of its technical package on the reporting framework 2.9, which includes validation rules, Data Point Model (DPM) data dictionary, and XBRL taxonomies.

    August 21, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Its Consultation Related to SME Financing

    FSB published responses received to the consultation on a report on the evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing.

    August 21, 2019 WebPage Regulatory News
    News

    APRA Revises Related Entities Standard for Banks

    APRA published a strengthened prudential standard APS 222 on associations with related entities, with the aim to mitigate contagion risk within banking groups.

    August 20, 2019 WebPage Regulatory News
    News

    EBA and ESMA Issue Joint Response to EC Letter on Crypto-Assets

    EBA and ESMA issued a joint response to the EC letter, from July 19, 2019, on crypto-assets.

    August 20, 2019 WebPage Regulatory News
    News

    FSB on Responses to Consultation on Wind-Down of Trading Portfolios

    FSB published responses received to the consultation on the solvent wind-down of the derivatives and trading book portfolio of a global systemically important bank (G-SIB).

    August 19, 2019 WebPage Regulatory News
    News

    FSB Publishes Responses to Consultation on Resolvability Disclosures

    FSB published responses received to the consultation on disclosures for resolution planning and resolvability of banks.

    August 19, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3681