Germany tells its banks to set aside $5.9 billion in case of slump

By Christian Kraemer and Hans Seidenstuecker BERLIN (Reuters) - German banking authorities will require the country's banks to set aside more provisions from July to cover risks stemming from a pumped up domestic property market and slowing economy, the country's financial authorities said on Monday. The Financial Stability Board - compromised of officials from the BaFin supervisor, the Finance Ministry, and the Bundesbank national central bank - said German banks combined need to set aside 5.3 billion euros ($5.9 billion) more in core capital.

Reuters May 28, 2019 00:06:39 IST
Germany tells its banks to set aside $5.9 billion in case of slump

Germany tells its banks to set aside 59 billion in case of slump

By Christian Kraemer and Hans Seidenstuecker

BERLIN (Reuters) - German banking authorities will require the country's banks to set aside more provisions from July to cover risks stemming from a pumped up domestic property market and slowing economy, the country's financial authorities said on Monday.

The Financial Stability Board - compromised of officials from the BaFin supervisor, the Finance Ministry, and the Bundesbank national central bank - said German banks combined need to set aside 5.3 billion euros ($5.9 billion) more in core capital.

Felix Hufeld, president of Germany's BaFin banking watchdog, said banks will have a 12-month timeframe to implement the countercyclical capital buffer, starting from July 1.

The step is meant as a precaution as regulators see "no concrete signs of acute risks for financial stability" in Germany, Deputy Finance Minister Joerg Kukies told a news conference in Berlin.

The financial authorities are responding to recent growth in lending in Germany that has outstripped the pace of expansion in the economy as a whole.

The provisions are aimed at preventing banks from sharply reining in their lending during a downturn, and thereby aggravating it. The Finance Ministry said Germany's banks should be able to meet the requirements "predominantly from existing surplus capital".

Critics see the move as Germany responding too late as the economy narrowly escaped recession last year and is growing only slowly this year - its 10th consecutive year of expansion.

Banks, facing a low interest rate environment that makes it harder for them to make a profit, nonetheless criticised the initiative.

"Today's decision by the Financial Stability Board to activate the countercyclical capital buffer within one year comes at an inopportune time and is met with incomprehension in the German banking industry," the Deutsche Kreditwirtschaft (DK) industry group said in a statement.

Bundesbank Vice President Claudia Buch, however, pointed to several potential risks, including a hard 'no deal' Brexit, overheating of the real estate market and overvalued collateral.

The DK industry group noted that German banks had passed stress tests that simulated an unexpected economic slump together with rising loan defaults.

"Serious risks to financial stability are currently not to be found," said the DK, which groups Germany's banking associations.

"In addition, German banks have increased their capital resources following the financial crisis as a result of the stricter regulations and are significantly more stable than before," the DK added.

($1 = 0.8934 euros)

(Additional reporting by Michael Nienaber; Writing by Paul Carrel; Editing by Susan Fenton)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.