Monitoring lending business, particularly large exposures and loans of €1.5 million or more
Lending business traditionally plays a predominant role in an institution's development, but it is concurrently one of the main sources of banking risks. Besides limiting the business volume by requiring institutions to back counterparty risks with liable capital or own funds pursuant to the Solvency Regulation, the Banking Act also contains specific provisions concerning lending business.
Pursuant to sections 13 to 14 of the Banking Act, institutions have to report their large exposures and loans of €1.5 million or more to the Bundesbank on a quarterly basis. Quantity data reports may be submitted in XML format in the Bundesbank's ExtraNet system or entered via the reporting platform. Master data on individual borrowers and borrower units must still be submitted on paper using the forms pursuant to Annexes 4 and 6 of the Regulation governing large exposures and loans of €1.5 million or more (Grosskredit- und Millionenkreditverordnung).
The key provision is the limitation of a single large exposure to 25% of the liable capital for the banking book and 25% of the own funds for the overall business of trading-book institutions. Large exposures are defined as exposures to an individual borrower or a single borrower unit which amount to or exceed at least 10% of the liable capital or own funds. The Bundesbank monitors compliance with the large exposure limits as well as the risk spread of an institution's large exposures. These provide banking supervisors with valuable information on the amounts and sector-specific concentration of institutions' risk from lending business.
Loans of €1.5 million or more to an individual borrower or a single borrower unit have to be reported to the Bundesbank. Its credit register collates all such reports, computes the total indebtedness of an individual borrower or a single borrower unit and then notifies the reporting institutions of that total amount of indebtedness of their borrowers.
This information is used for the Bundesbank's own analyses (e.g. where there is a danger of firms becoming insolvent), including global evaluations aimed at identifying potential risks to the stability of the overall financial system. In addition, the information serves as a data pool both for the involved credit institutions and for banking supervisors and is important as a source of information for both.
