According to the supervisory authorities, Germany’s banks and savings banks are largely crisis-proof. “The banking system is showing satisfactory resilience,” said Joachim Wuermeling, Deutsche Bundesbank board member responsible for banking supervision, in Frankfurt. Nevertheless, caution is advised, there is great uncertainty as to the development of the economy, inflation and interest rates. “The banks should not sit back,” warned Wuermeling.
The Bundesbank and the Federal Financial Supervisory Authority (Bafin) have examined the profitability and resilience of the approximately 1,300 institutions that they directly supervise under stress conditions.
In a survey, the institutes had to answer how their plans and forecasts would react to five interest rate scenarios for the period 2022 to 2026. In the actual stress test, the financial institutions simulated their earnings situation for the years 2022 to 2024 in a base and a stress scenario with a significant economic downturn.
“Most of the German institutions are well capitalized. However, a low double-digit number of institutions will have to struggle in the event of a significant economic downturn,” summarized Bafin’s chief bank supervisor, Raimund Röseler. The assumed stress scenario led to an average deterioration in the core Tier 1 capital ratio by 3.2 percentage points to 14.5 percent. Core capital is a buffer for times of crisis.
