Wednesday January 12, 2022
Banks need to create buffers
Real estate loans are a concern for supervisors
The banking system got through the pandemic well. However, according to the supervisors, the risks have increased. That is why the financial houses should make their cushion lush again. The experts take a particularly close look at the real estate market.
The German financial supervisors want to demand more crisis cushion from the banks because of the increasing risks in the financial system. In doing so, they look in particular at the increased dangers in the real estate market. “We have to take preventive action now, now at the beginning of an upswing phase, in order to protect the financial system from future risks,” said Bundesbank Vice President Claudia Buch at a joint press conference with BaFin boss Mark Branson and Finance State Secretary Carsten Pillath. The Financial Stability Committee (AFS), on which the three institutions sit, sees a need for action.
The financial supervisors plan to raise the so-called countercyclical capital buffer from currently zero percent to 0.75 percent. This involves a surcharge on other reserves that serves to cushion economic downturns. In addition, an additional sectoral buffer for residential property loans of two percent is to be introduced. The hearings on this started this Wednesday. BaFin explained that financial institutions would have enough time to adjust to the measures. You should fully implement the steps by February 1, 2023.
The financial system has proven to be robust in the Corona crisis, explained the BaFin. However, the vulnerabilities have increased. Therefore, preventive steps are appropriate to strengthen the resilience of the banking sector. According to Bundesbank Vice President Buch, credit risks are increasingly underestimated. In addition, the interest rate risks have increased. For example, abrupt stock market corrections could have a negative impact on financial stability.
According to BaFin boss Branson, residential property prices and loan volumes are rising particularly quickly. “For BaFin these are decisive signals that it is now time to make the financial system more resilient.” According to the book, residential properties are overvalued by 10 to 30 percent.
“The banks are not unduly strained by these two measures,” said Branson. The steps would keep a total of 22 billion euros in core capital in the system in order to cushion future risks. Of this, 17 billion euros went back to the countercyclical and 5 billion euros to the sectoral buffer.