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 Large German banks continue to under-perform European peers in market valuation, reflecting high operating costs, outdated IT systems, provisions for compliance violations, and in some cases legacy costs from exposure to the shipping industry.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

    PRA Revises Branch Return and Updates Guidance for Regulatory Reports

    PRA published the policy statement PS17/19, which contains the final policy related to changes in the format and content of the Branch Return Form and reporting guidance.

    September 12, 2019 WebPage Regulatory News
    News

    FINMA Outlines Treatment of Stablecoins in Supplement to Guide on ICO

    FINMA published a supplement to its initial coin offerings (ICOs) guidelines, outlining the treatment for stablecoins under the Swiss supervisory law.

    September 11, 2019 WebPage Regulatory News
    News

    Ursula von der Leyen Presents Structure of Next European Commission

    President-elect Ursula von der Leyen has presented her team and the new structure of the next European Commission.

    September 10, 2019 WebPage Regulatory News
    News

    FED Proposes to Revise and Extend Reporting Form on Systemic Risk

    FED proposed to extend for three years, with revision, the Banking Organization Systemic Risk Report (FR Y-15; OMB No. 7100-0352).

    September 10, 2019 WebPage Regulatory News
    News

    EBA Issues Revised List of Validation Rules for Reporting

    EBA published the revised list of validation rules (version 2.9) in its implementing technical standards on supervisory reporting.

    September 10, 2019 WebPage Regulatory News
    News

    Bundesbank Publishes Supplementary Validation Rules for Reporting

    Bundesbank published the updated document containing supplementary validation rules in the context of the implementation of the reporting system at national level.

    September 10, 2019 WebPage Regulatory News
    News

    APRA Licenses Xinja Bank as Authorized Deposit-Taking Institution

    APRA granted Xinja Bank Limited a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

    September 09, 2019 WebPage Regulatory News
    News

    FDIC Proposes Revisions to Regulations on Interest Rate Restrictions

    FDIC proposed revisions to its regulations covering interest rate restrictions that apply to less than well-capitalized insured depository institutions.

    September 09, 2019 WebPage Regulatory News
    News

    EBA Intends to Clarify End-Treatment of Grandfathered Instruments

    EBA announced its intention to clarify the prudential treatment applicable to own funds instruments at the end of the grandfathering period, which expires on December 31, 2021.

    September 09, 2019 WebPage Regulatory News
    News

    IMF Releases Reports on 2019 Article IV Consultation with Saudi Arabia

    IMF published its staff report and selected issues report in context of the 2019 Article IV consultation with Saudi Arabia.

    September 09, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3799