Featured Product

    BaFin and Bundesbank Publish Results of Stress Test for LSIs

    September 23, 2019

    BaFin and Deutsche Bundesbank published the results of the 2019 stress testing exercise for less significant institutions (LSI). The stress test was conducted on nearly 1,412 small and medium-size German credit institutions that are under direct national supervision, constitute approximately 89% of all credit institutions in Germany, and cover about 38% of the assets in the banking system. Bundesbank and BaFin will use the results of the stress test to determine the pillar 2 guidance.

    The supervisory authorities defined several stress scenarios for the institutions to use. The institutions simulated their earnings situation and resilience for the period between 2019 and 2021, in each case using a baseline scenario and a stress scenario. The stress scenario anticipated a severe slowdown in the economy, during which interest rate risks, credit risks, and market risks arose, among other things. New to the 2019 stress test was the modeling of the banks’ statements of profit or loss, based on a crisis scenario defined by the supervisors.

    The results show that the profitability of small and medium-size banks and savings banks in Germany is low. The prospect of a prolonged period of historically low interest rates makes it very likely that profitability will decrease further. On an average, the institutions anticipate an increase in the common equity tier 1 (CET 1) capital from 16.5% to 16.8% by 2023. However, a third of the institutions expect CET 1 capital to fall. This is based primarily on the significant increase in risk-weighted assets, which is due to growing business volume and higher risk exposure. The longer the low interest rate environment continues, the more difficult it is for the institutions to build up capital. Despite this, the institutions are still able to continue to build up surplus capital, just to a lesser extent. With regard to residential and commercial real estate, the survey highlighted the need for standardized data collection on real estate financing. Analyses of over 100 banks and savings banks regarding their credit underwriting standards, excluding commercial real estate mortgage lending, indicated that credit underwriting standards were being relaxed.

     

    Related Links

    Keywords: Europe, Germany, Banking, Less Significant Institutions, Pillar 2, Basel III, Stress Testing, BaFin, Bundesbank

    Featured Experts
    Related Articles
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    News

    EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway

    The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.

    February 25, 2021 WebPage Regulatory News
    News

    PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks

    In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.

    February 25, 2021 WebPage Regulatory News
    News

    FSB Sets Out Work Priorities for 2021

    In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.

    February 25, 2021 WebPage Regulatory News
    News

    EU Publishes Corrigendum to Revised Capital Requirements Regulation

    EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).

    February 25, 2021 WebPage Regulatory News
    News

    ESAs Issue Statement on Application of Sustainability Disclosures Rule

    ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).

    February 25, 2021 WebPage Regulatory News
    News

    EC Consults on Crisis Management and Deposit Insurance Frameworks

    EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.

    February 25, 2021 WebPage Regulatory News
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards for Supervisory Cooperation Under IFD

    EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Addresses Banks in Scope of First Resolvability Assessment

    BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.

    February 24, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6629