Featured Product

    IMF Publishes Reports Under 2019 Article IV Consultation with Germany

    July 10, 2019

    IMF published its staff report and selected issued report in context of the 2019 Article IV consultation with Germany. Directors welcomed the progress in implementing the FSAP recommendations. They noted the low profitability in both the bank and life insurance sectors, the elevated macro-financial vulnerabilities, and the rapidly rising real estate prices in dynamic cities. Directors underscored the need to monitor interest rate risk and accelerate restructuring efforts to durably enhance financial sector resilience. They welcomed the activation of the countercyclical capital buffer (CCyB) and encouraged further steps to address data gaps that would enable a fuller assessment of potential financial stability risks. They also supported expanding the macro-prudential toolkit, including tools for the commercial real estate market.

    The staff report highlighted that low profitability continues to weigh on the banking sector, eroding the ability of banks to generate capital organically and putting them at risk in the event of adverse earnings shocks. Large German banks continue to under-perform European peers in market valuation, reflecting high operating costs, outdated IT systems, provisions for compliance violations, and in some cases legacy costs from exposure to the shipping industry. The full adoption of Basel III—especially the introduction of an output floor for internal risk models—is expected to substantially increase German banks’ minimum capital requirement. As of mid-2018, most German life insures’ solvency ratios were well above the 100% threshold set by supervisors, although nearly two-third of them relied on transitional measures and the dispersion was large. The report mentions that supervisors should continue monitoring interest rate risk and press for faster progress in implementing restructuring plans in both banking and insurance sectors. 

    According to an analysis by Bundesbank, the average tier 1 capital ratio of German banks would be lower by nearly 2 percentage points if they used historical level of risk provisioning. Meanwhile, banks that rely on internal models to calculate regulatory capital have reduced risk-weights and there is evidence of “search for yield” behavior. These trends, alongside rising real estate prices and weak bank profitability, point to a rise in macro-financial vulnerabilities. Given the buildup of macro-financial vulnerabilities, a tightening of macro-prudential policies is appropriate to enhance resilience in the banking system. In May, the Financial Stability Committee recommended to raise the CCyB by 0.25% and banks have 12 months from the beginning of third quarter of 2019 to meet the new requirement. The relatively small increase in the CCyB should have limited impact on credit supply, which is only now recovering after nearly two decades of deleveraging.

    The assessment concludes that additional macro-prudential action is needed to guard against imbalances in the real estate sector; these actions could include urgently addressing data gaps, considering prompt activation of the existing borrower-based measures, and expanding the macro-prudential toolkit. The authorities shared the view that risks to financial stability are building up, yet did not see acute systemic risks. Based on the available indicators and information, the authorities saw no substantial increase in risks to financial stability stemming from the flow of new housing loans, which would require an activation of sector-specific demand-side macro-prudential policy tools.

     

    Related Links

    Keywords: Europe, Germany, Banking, Insurance, Article IV, FSAP, CCyB, Systemic Risk, Macro-Prudential Policy, Basel III, Financial Stability, IMF

    Featured Experts
    Related Articles
    News

    FCA Consults on Regulation of International Firms in UK

    FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.

    September 23, 2020 WebPage Regulatory News
    News

    MAS Amends Notice on Capital Adequacy Requirements of Banks

    MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.

    September 23, 2020 WebPage Regulatory News
    News

    FCA to Begin to Move Firms to New Data Collection Platform RegData

    FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.

    September 23, 2020 WebPage Regulatory News
    News

    APRA Reviews Repayment Deferral Plans, Identifies Best Practices

    APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Assess Risks to Financial Sector After COVID-19 Outbreak

    ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.

    September 22, 2020 WebPage Regulatory News
    News

    BoE Confirms Withdrawal of COVID Corporate Financing Facility

    BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Launch Survey on Templates for Product Disclosures Under SFDR

    ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).

    September 21, 2020 WebPage Regulatory News
    News

    ECB Proposes Integrated Reporting Framework to Reduce Burden for Banks

    ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.

    September 21, 2020 WebPage Regulatory News
    News

    EC Deems UK Framework for CCPs Temporarily Equivalent to EMIR Rules

    EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).

    September 21, 2020 WebPage Regulatory News
    News

    EBA to Phase Out Guidelines on Loan Repayment Moratoria

    EBA has decided to phase out the guidelines on legislative and non-legislative moratoria of loan repayments, in accordance with the earlier specified end of September deadline.

    September 21, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5829