The Federal Ministry of Finance, the Bundesbank and the financial supervisory authority Bafin are no longer watching the loan-financed rise in residential property prices.

On Wednesday, the Financial Stability Committee, made up of representatives from the three institutions, proposed stricter capital requirements for German banks.

As Bundesbank Vice President Claudia Buch had already indicated in advance, the countercyclical capital buffer, which was set back to zero percent at the beginning of the Corona crisis, will be reactivated.

Markus Frühauf

Editor in business.

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On the one hand, the amount of the proposed capital buffer of 0.75 percent for risky balance sheet items, especially loans, is surprising. Before the pandemic, it was only 0.25 percent. On the other hand, the supervisors are introducing a capital buffer of 2 percent specifically for residential property loans. According to Bafin President Mark Branson, who attended the online press conference together with Buch and the new State Secretary in the Ministry of Finance, Carsten Pillath, the German banks must hold an additional 22 billion euros in equity with the two capital buffers.

According to Bransons, this protective ring against possible losses in the event of a crisis is already available as excess equity in the German banking system, so that it only needs to be "conserved". The countercyclical capital buffer, which relates to the entire balance sheet, accounts for 17 billion euros, and the remaining 5 billion euros for the new requirements for residential real estate. For some banks, whose capital cover is already thin, results with the two buffers a capital requirement of 200 million euros, added Branson.

Finance State Secretary Pillath justified the measure with the need to switch from pandemic to prevention mode.

But the decision of the Financial Stability Committee cannot be explained of its own free will, because last November the European Central Bank (ECB) sounded the alarm in its financial stability report with a view to the German residential property boom and demanded countermeasures from Germany.

Underestimated credit risks

Bundesbank Vice President Buch emphasized that the banks are currently well capitalized. But she added as a warning: “We have increasing indications that credit risks are being underestimated.” She referred to the risk premiums for corporate bonds and loans, which are in some cases lower than before the pandemic. In addition, the loans at German banks have shifted further to the comparatively weak companies. The internal models of the banks also indicated a lower probability of default, even for companies whose balance sheet ratios had hardly improved. In addition, there would be the increased risk of interest rate changes in view of the inflation trend.

Finally, book referred to overvalued assets and loan collateral, especially in residential real estate.

For some years now, their prices have been 10 to 30 percent higher than the values ​​that are justified by fundamental data.

She referred to the once again strong increase in residential property prices of 12 percent in the third quarter of 2021. The loans for residential property also rose at an above-average rate of 7 percent during this period.

In the event of a price collapse, the loan collateral might not be enough to compensate for loan defaults, warned Buch.

The umbrella association of banks and savings banks, the German credit industry, criticized the measures as incomprehensible.

Lending capacity will be significantly restricted in the highly uncertain recovery of the German economy.