Finances: Increasing risks: banks should create capital buffers

Rising risks: banks should create capital buffers

Due to the increasing risks on the financial market, the German banks should again create additional capital buffers. Photo: Boris Roessler / dpa

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Banks generally use a capital buffer to increase their resilience in times of crisis. However, because of the corona pandemic, it was reduced to zero. But that’s risky.

Due to the increasing risks on the financial market, the German banks should again create additional capital buffers. This is a preventive measure, currently the financial sector is still very resilient, said Bundesbank Vice President Claudia Buch on Wednesday.

The head of financial supervision Bafin, Mark Branson, emphasized: “With a view to financial stability, it is now time to switch to prevention mode.” That was the conclusion of the Financial Stability Committee.

Specifically, the banks are to build a so-called countercyclical capital buffer of 0.75 percent. This buffer was reduced to zero percent in the wake of the pandemic, before it was 0.25 percent. In principle, the capital buffer is intended to increase the resilience of banks in times of crisis. In addition, a new buffer is to be introduced that specifically protects residential property loans. Here the banks are supposed to put 2 percent aside.

The real estate market is currently threatening to overheat, said Branson. Prices for houses and apartments have risen significantly recently, there are many loans with long terms that make the financial system vulnerable to changes in interest rates. The Bafin boss announced that one will closely monitor how the standards of lending develop.

Buch cited changes in interest rates as further risks. Should interest rates rise abruptly, the banks would be severely affected: their refinancing costs would then rise quickly, but the income only slowly because of the long-term loans. Overall, the financial market has recently become more vulnerable.

“The banks are not unduly strained by these two measures,” emphasized Branson. The countercyclical capital buffer is around 17 billion euros, the sectoral buffer around 5 billion. Most banks have enough capital for this, and only a little has to be accumulated anew. In addition, the banks would have until February 2023 to build up the buffer. “So we don’t expect a credit crunch,” said Branson.


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