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

    IAIS and SIF Publish Paper on Implementation of TCFD Recommendations

    IAIS and Sustainable Insurance Forum (SIF) published an issues paper on implementation of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

    February 27, 2020 WebPage Regulatory News
    News

    BCBS Meets to Advance Supervisory Initiatives and Basel Implementation

    BCBS met in Basel on February 26-27, 2020 to review risks impacting the banking system, advance a range of supervisory initiatives, and promote the implementation of Basel III.

    February 27, 2020 WebPage Regulatory News
    News

    EBA Publishes List of Institutions for Benchmarking Exercise in 2020

    EBA updated the list of institutions that have a reporting obligation for the EU supervisory benchmarking exercise in 2020.

    February 27, 2020 WebPage Regulatory News
    News

    BoE Launches Private Finance Agenda for Transition to Net Zero Economy

    The Governor of BoE, Mark Carney, launched the "COP26 Private Finance Agenda" to help private finance support the whole economy transition to net zero.

    February 27, 2020 WebPage Regulatory News
    News

    OSFI Consults on the 2020 LICAT Guideline for Life Insurers

    OSFI is consulting on the 2020 Life Insurance Capital Adequacy Test (LICAT) guideline for federally regulated life insurance companies and fraternal benefit societies.

    February 26, 2020 WebPage Regulatory News
    News

    BoE Publishes Notice on Collateral Referencing LIBOR for Use in SMF

    BoE published a market notice that forms part of the Documentation for the operations of BoE under the Sterling Monetary Framework (SMF).

    February 26, 2020 WebPage Regulatory News
    News

    US Agencies Correct Error in Capital Simplification Rule for Banks

    US Agencies (FDIC, FED, and OCC) published a notice in the Federal Register to correct an erroneous amendatory instruction in the final regulatory capital rule that was published in November 2019.

    February 26, 2020 WebPage Regulatory News
    News

    BaFin Publishes Submission Deadlines Under Solvency II

    BaFin published quarterly and annual submission deadlines on the Solvency II reporting page on its website.

    February 25, 2020 WebPage Regulatory News
    News

    RBNZ to Address Cyber Risk Through Risk Management Guidance

    RBNZ announced that it is strengthening its efforts to enhance resilience of the financial system from cyber threats, including developing risk management guidance and promoting information-sharing in collaboration with industry and other public organizations.

    February 25, 2020 WebPage Regulatory News
    News

    ISDA Consults Again on Implementing Pre-Cessation Derivative Fallbacks

    ISDA launched a new consultation on the implementation of pre-cessation fallbacks for derivatives.

    February 25, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4745