US: Bundesbank: Financial system Vulnerable with rising risks

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The Bundesbank warns financial institutions in the face of growing risks for financial stability to more precaution. "The banks should be able to absorb losses on their own," said Bundesbank Vice President Claudia Buch on Thursday when the 2022 financial stability report was presented in Frankfurt. Otherwise there could be a credit clamp that exacerbates a real economy crisis.

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Overall, the Bundesbank sees a significantly worsened environment: for 2023, economists predict a recession. The extremely high inflation of consumers and companies has been troubled by consumers and companies for months. The probability increases that debtors cannot repay loans. "The real economy risks have increased significantly," summarized Buch. The financial system remains vulnerable to these risks. "That means we really have to worry that the vulnerability we have already seen will not become any injuries that are then very difficult to heal later," said Buch.

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The time series, with the help of which money houses estimated future credit risks, could turn out to be too optimistic, warned the Bundesbank Vice President: «So if we see that the risk provision has dropped very much, this should not yet give the all-clear for future risks . "

Risk prevention

The Bundesbank board member Joachim Wuermeling, responsible for banking supervision, confirmed: «Credit risks and credit cases will be a constant companion of 2023. And that is the reason why we give appropriate warnings. » Wuermeling warned that money houses should use scope for further provision: "What is surprising to us is that so few additional risk provision is formed."

The recently increased interest rates are positive for the industry after years of negative interest rates. In the short term, however, there are also risks because higher interest rates also burden borrowers. Higher interest rates had also pressed courses for securities, banks had to depreciate and had already largely used up their hidden reserves, explained Buch.

When paying dividends, the Bundesbank calls financial institutions to reluctance. Wuermeling emphasized: "In view of a high level of uncertainty, you should carry out careful risk provision and only carefully distribute profits." It is important to keep as much capital as possible in the system for possible losses, said Wuermeling.

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