AFP, Frankfurt Am Main :
German banks will for the first time be required to bolster capital buffers designed to prevent a credit crunch in case of recession, authorities said Monday.
“Financial stability risks have been built up during the long period of economic upswing and low interest rates,” the Financial Stability Commission (AFS) – which includes the finance ministry alongside the central bank and markets watchdog – said in a statement.
If the dangers manifest themselves, such as potentially undervalued risks, potentially overvalued collateral or interest rates remaining low for longer than expected, “banks could react by excessively limiting the granting of credit to the real economy,” the AFS warned.
By ordering lenders to hold an additional capital buffer equivalent to 0.25 percent of their risk-weighted assets, authorities hope they will have the funds to soak up potential losses.
That should prevent banks from turning off the credit taps in a downturn, which would have the “pro-cyclical” effect of worsening the malaise.
German banks will for the first time be required to bolster capital buffers designed to prevent a credit crunch in case of recession, authorities said Monday.
“Financial stability risks have been built up during the long period of economic upswing and low interest rates,” the Financial Stability Commission (AFS) – which includes the finance ministry alongside the central bank and markets watchdog – said in a statement.
If the dangers manifest themselves, such as potentially undervalued risks, potentially overvalued collateral or interest rates remaining low for longer than expected, “banks could react by excessively limiting the granting of credit to the real economy,” the AFS warned.
By ordering lenders to hold an additional capital buffer equivalent to 0.25 percent of their risk-weighted assets, authorities hope they will have the funds to soak up potential losses.
That should prevent banks from turning off the credit taps in a downturn, which would have the “pro-cyclical” effect of worsening the malaise.
