The German Central Bank (Deutsche Bundesbank) and the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) have conducted a survey on the revenue situation and resilience of German banks in the low yield environment. The previous surveys in 2013 and 2015 have shown that the low interest rate environment poses continuous negative challenges on small and mid-size institutes.
The survey which will be addressed to around 1.500 so-called “less significant banks” (which are under direct national supervision of BaFin and German Central Bank) has the aim to give the regulators an overview of the impacts associated with different interest scenarios.
The survey consists of three parts:
- The banks have to provide prognosis data and information on five pre-defined interest yield scenarios for the period of 2017 until 2021. These regulatory scenarios encompass a continuous low interest rate scenario as well as sudden positive and negative interest shocks.
- A stress test which covers interest change risks, credit risks and market price risks. The objective is to test the resilience of the banks taking into account various additional stress factors such as sudden interest rate changes, increasing defaults in the bank’s loan portfolio or a sudden decrease of asset prices. The risks identified in the course of these tests will be used to assess the adequateness of regulatory capital ratios.
- The third module of the survey aims to showcase the impacts of the low interest yield environment on new residential mortgage lending, pensions obligations and the development of standards for granting loans.
The data which is required in first two modules has to be provided to the regulator by the end of May 2017. Information required in the third module shall be provided by the end of June 2017.
The regulator has stated that it will use the findings of the collected data for its ongoing regulatory activities without further specifying the use of the data.