Overall, German banks have so far weathered the most recent shock waves on the international financial markets well. But the local supervisors do not want to give the all-clear.
After the recent turbulence in the international banking market, the financial supervisory authority Bafin is warning institutions in Germany not to be careless. “The German banking system has proven to be stable and resilient so far,” said the President of the Federal Financial Supervisory Authority (Bafin), Mark Branson, in Frankfurt. “Nevertheless, we must be vigilant.” Overall, it is “not certain that this difficult phase is behind us. Stressful phases often develop in spurts”.
In the USA, three regional banks had collapsed since the beginning of March after enormous withdrawals of funds due to liquidity concerns. In Europe, the major bank Credit Suisse, which had previously had problems, was saved from collapse thanks to a state-organized emergency takeover by the larger UBS. A problem for the institutes: the rapidly increasing interest rates after years of zero and negative interest rates.
“Real-time stress test”
“Since March, the global financial system has been going through a kind of real-time stress test,” said Branson, warning the financial industry in Germany: “In my view, an attitude that something like this could not happen in Europe would be totally out of place.”
Overall, the rising interest rates had a positive effect on the profitability of the banks, said Branson. However, several smaller institutes in Germany have used up their hidden reserves to cushion interest rate risks. “We are particularly closely monitoring a handful of small institutions with low reserves and capital buffers and currently high interest rate risks,” said Branson. But there hasn’t been a “major increase in the number of distressed banks” in this country. The Bafin President emphasized with a view to the entire German banking market: “So far we have not seen any danger of a systemic crisis here.”
Social networks as a fire accelerator
According to Bafin, social networks act as fire accelerators for crises: “Bank runs and liquidity crises occur much faster today than they used to,” Branson stated. “Within seconds, information and rumors can be spread via social media. And deposits can be withdrawn via online banking. At any time of the day and almost anywhere in the world. As a result, some banks quickly got into a liquidity crisis.”
At German institutions there are “no rational reasons for a liquidity crisis,” emphasized the Bafin boss. “But there are also irrational fears,” said Branson. “No system is immune to the risk of contagion from the nervousness in the markets.”
The global financial system has become more stable since the 2007/2008 financial crisis. “We’ve accomplished a lot, but we’re far from done,” said Branson. “From my point of view, we have to ensure that the difficulties of a small or medium-sized institute no longer trigger unnecessary fears of contagion.”
Even large, systemically important banks should be able to be wound up in the event of a financial crisis. “That was a central concern of the reforms after the 2007/2008 crisis. Never again should an institute be too big to fail. We must not give up this goal,” Branson demanded.
Source: Stern
