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Possible real estate bubble: Bafin is demanding a higher security cushion from the banks


The bank regulators are concerned about the rapidly increasing prices on the real estate market. It is demanding a higher risk buffer from the banks in order to be prepared for a bursting of the bubble.

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Banking district in Frankfurt am Main: worries about overburdened borrowers

Photo: Frank Rumpenhorst / dpa

The German financial supervisors want to instruct the banks to build up additional reserves in order to take account of the increased risks in the financial system. The so-called countercyclical capital buffer from currently zero percent should increase to 0.75 percent, demanded the head of the Federal Financial Supervisory Authority (Bafin), Mark Branson. This is about a surcharge on other reserves that serves to cushion economic downturns. In addition, an additional buffer for residential property loans of two percent should be introduced. The hearings on these steps begin this Wednesday.

The financial system has proven to be robust in the corona crisis, explained the Bafin. However, the vulnerabilities have increased, especially in the residential property market. The prices there have often risen above reasonable levels in recent years. This is why there are fears that the bubble will burst, especially in some metropolitan regions. As a result, borrowers could be forced to provide additional collateral for their mortgages, which in turn could lead to financial distress in an emergency. The financial supervisors are convinced that the additional capital buffer would ensure that the associated risks would be covered.

The preventive steps to strengthen the resilience of the banking sector are appropriate, Branson said.

The financial institutions would have enough time to adjust to the measures and must fully implement the amended requirements by February 1, 2023.

The supervisory authority expects that a total of 22 billion euros in hard core capital will be created as a cushion in the banking system.

However, the supervisors have only identified additional capital requirements at a few institutions.

mik / Reuters

Source: spiegel

All business articles on 2022-01-12

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