June 23, 2021

The Bundesbank and the BaFin begin tests of resistance to 1,400 banks

The Bundesbank and the BaFin begin tests of resistance to 1,400 banks



The Bundesbank (central bank) and the German authorities of financial supervision BaFin have begun this Monday the fourth test of resistance to 1,400 medium and small German banks, which are not supervised by the European Central Bank (ECB) directly.

The Bundesbank reported today that it is the fourth test on income and resilience that these banks perform less significant importance for the stability of the financial system, whose results will publish in the autumn.

The German supervisory authorities are also going to ask selected banks about the risks of real estate financing and the evolution of credit granting standards because they believe that data are lacking in these areas.

Previous supervisory questions about low interest rates have shown "protracted phases of low interest rates, strong economic weakening or abrupt changes in interest rates challenge these credit institutes on a sustained basis," the Bundesbank adds.

That is why the Bundesbank and the BaFin consider that regular reviews are still "essential".

In the endurance test of 2019, 1,400 banks and savings banks participate, supervised by the competent national authorities in Germany, the Bundesbank and BaFin.

In addition, the Bundesbank and the BaFin are going to carry out a resistance test in parallel to all German savings banks for construction, a test that reviews the business model of these special credit institutes.

The Bundesbank and the BaFin will ask the medium and small banks and savings banks in the resistance test data on their plans and forecasts, data in five scenarios on interest rates in a period of time between 2019 and 2023.

The scenarios for the supervision test proposed by the Bundesbank and BaFin include a permanent period of low interest rates and an impact of positive and negative interest rates.

Banks and savings banks will also have to simulate their income and endurance capacity between 2019 and 2021 in a base scenario and in a stress scenario.

This last scenario of tension contemplates a significant economic worsening in which risks arise due to changes in interest rates, credit and changes in market prices.

The 2019 endurance test includes a novelty and is an income statement that focuses on crisis scenarios that have been previously given by supervisors.

German banks and savings banks can generate income in those three years for interest or provisions, but at the same time they should consider impacts on the result in the stress scenario.

They should send the data to the Bundesbank and the BaFin before the end of May.

In the case of data on real estate financing and credit granting standards, the selected banks will have time until mid-July to send them.

The Bundesbank and the BaFin will publish the results of the tests in the autumn.

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