The survey of 1,200 financial institutions launched at the beginning of December is intended to help assess the impact of the interest rate turnaround on the institutions. The financial supervisory authority Bafin and the Bundesbank launched a survey of around 1,200 financial institutions at the beginning of December to assess the impact of the interest rate turnaround on the institutions. For most banks, net interest income remains the central source of earnings, a Bafin spokesman said, explaining the move.
“The survey does not mean a U-turn, but is a targeted measure of a preventively acting supervisory authority.” The Bundesbank also confirmed the survey.
After years of ultra-loose monetary policy, the European Central Bank (ECB) completed the interest rate turnaround in July. Within a few months, it screwed the key rates since then by a total of 2.0 percentage points upwards. A further increase is expected at this Thursday’s interest rate meeting. Currently, the key deposit rate on the financial markets, which banks receive from the central bank for parking excess funds, is 1.5 percent.
The stress test conducted by the Bundesbank and BaFin in September had already shown that profits are likely to fall initially when interest rates rise, mainly due to price losses on securities, the Bafin spokesman explained. According to the Bundesbank’s latest financial stability report, write-downs on deposits at savings banks and credit cooperatives already amounted to 12.3 billion euros in the first half of the year, corresponding to around 5.6 percent of hard core capital.
Hidden valuation reserves had prevented significantly higher losses but had shrunk by 21.8 billion euros. “The banks thus no longer have any hidden reserves available in the aggregate for the time being, which is why further losses in value would immediately lead to corresponding write-downs and losses,” the November report said.
With the current survey – similar to the regular stress test of smaller institutions – the supervisors want an up-to-date picture of how the interest rate turnaround affects banks’ open interest rate positions.
When Bafin and the Bundesbank presented their stress test at the end of September, Bafin Director Raimund Röseler had classified the assumed crises as manageable for most institutions. He said that German institutions were predominantly well-capitalized.