February 4, 2012, 04:08 CET
Current issues
Annual accounts for 2011
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- 09-12-2011 New Bundesbank projection for 2012 and 2013
- 08-12-2011 EBA Banking Survey
- 05-12-2011 The Bundesbank's role in German government bond issuance
- 10-11-2011 Financial Stability Review 2011
- 27-11-2011 The EBA publishes details on capital shortfall of banks
New Bundesbank projection for 2012 and 2013
EBA Banking Survey
On 8 December 2011, the Bundesbank and BaFin published the results for Germany of an EU-wide survey on bank recapitalisation.
For an overview of the results of all the countries which participated in the stress test, please click on the following link to the EBA website.
The Bundesbank’s role in German government bond issuance
The Deutsche Bundesbank, in its role as the German government’s house bank, fulfils various functions in connection with central government borrowing and securities settlement. To this end, it cooperates closely with the Federal Ministry of Finance and the Federal Republic of Germany – Finance Agency, which was established in September 2000 to organise central government debt management with a maximum of cost-efficiency and risk optimisation.
It should be emphasised that the Deutsche Bundesbank, in the context of the German government’s bond issuance programme and secondary market transactions involving Federal securities, does not lend to the government or take Federal securities onto its own books.
Regular auctions, also called tenders, are conducted based on an issuance calendar drawn up by the Finance Agency. One-off government issues of Federal bonds (Bunds), five-year Federal notes (Bobls), Federal Treasury notes (Schätze) and Federal Treasury discount paper (Bubills) are issued or reopened using the auction procedure via the Bund Bidding System (BBS), which was developed and is operated by the Bundesbank. The BBS provides fully electronic processing, from the announcement of the tender and the invitation to bid, through the submission and acceptance of bids, to the calculation and notification of overall and individual allotment amounts.
Members of the Bund Issue Auction Group, which is made up of currently 38 domestic and foreign credit institutions and investment firms, are entitled to bid in the auctions that the Bundesbank conducts at the behest of the Finance Agency and on behalf of the Federal government. The Finance Agency decides on the allotment amount in the respective auction procedure. In each auction, it retains a percentage of the securities for secondary market operations as the government’s own holdings, which it later gradually releases onto the secondary market on behalf of the German government.
The Bundesbank carries out market management operations on German securities exchanges for all listed Federal issues on behalf of the Finance Agency. The objective of these operations, in which the Bank buys and sells Federal securities for the account of the German government, is to ensure a liquid market in government issues on the floor exchanges. Small investors, too, are to be given the opportunity to sell, or add to, their holdings of Federal securities at fair market prices at any time. The Bundesbank reference price, which the Bundesbank helps fix daily for every Federal security listed on the Frankfurt stock exchange, is an important benchmark, especially for the retail business.
In connection with the German government’s retail business, the Bundesbank is involved, through credit institutions, in selling tap issues of Federal savings notes and Federal Treasury financing paper.
The German government’s securities transactions are settled via the cash and safe custody accounts that it maintains with the Bundesbank.
Financial Stability Review 2011- European sovereign debt crisis greatest risk to financial system
The Bundesbank’s annual Financial Stability Review was presented to the media on 10 November 2011. It identifies the European sovereign debt crisis as the greatest current risk to the German financial system. Besides Greece, Ireland and Portugal, serious doubts are now beginning to arise as to whether Italy and Spain, too, will be able to service and repay their high levels of government debt.
It follows that overcoming the crisis requires tackling unsustainable public finances in several euro-area countries. Financial assistance is no substitute for such corrections. The objective must be to work towards permanently sound fiscal policies in the euro-area countries through closer supervision, stronger institutions and deeper economic union. The strict separation between monetary and fiscal policy must be respected.
According to the Financial Stability Review, the European banking sector is confronted by a considerable loss of confidence as a result of the sovereign debt crisis. Countering this loss of confidence is possibly the greatest challenge facing the financial industry. The Deutsche Bundesbank therefore welcomes the recapitalisation of the major banks that has been initiated at the European level. Nonetheless, improved resilience has enhanced the German banking system’s robustness in the past two years. Capital levels have risen appreciably, profitability has been fairly stable to date, and vulnerabilities in refinancing have been reduced.
Challenges are now emerging, however. These include haircuts on some claims against the Greek state, higher funding costs and the deterioration of the economic outlook. Moreover, the Bundesbank sees ongoing risks in persistently low interest rates and high global liquidity. Moreover, legacy problems at banks as a result of credit claims on commercial real estate and structured securities have not yet been fully dealt with.
To secure financial stability long term, the institutional and regulatory framework needs developing. Large financial institutions, too, must be able to exit the market without jeopardising the financial system.
The EBA publishes details on capital shortfall of banks
The European Banking Authority on Wednesday, 26 October 2011, disclosed preliminary data on the capital shortfall expected for the EU banking sector. According to these data, the preliminary and indicative capital shortfall at the EU level totals € 106.4 billion, of which € 5.2 billion is attributable to Germany. The EBA thus clarifies the decision by the European Council requiring a group of major international banks to build up a 9% Core Tier 1 ratio by the end of June 2012, which goes far beyond regulatory requirements. The basis used in this context is the EBA 2011 stress test definition. When calculating the ratio it is necessary to consider an additional buffer for market price losses in sovereign exposure to EEA states.
The preliminary figures stated by the EBA are based on a sample of 70 European credit institutions – of which 13 in Germany – conducted at the beginning of October jointly with the national supervisory authorities. These are all the banks that participated in the 2011 EU-wide stress test except for a subset of small non cross-border banks. In the sample, details on the composition of Core Tier 1 capital as at 30 June 2011 and the sovereign exposure to EEA states were submitted.
The EBA will update the capital shortfall data based on the credit institutions’ audited quarterly figures as at 30 September 2011. The capital requirement to be satisfied by 30 June 2012 will be determined on the basis of a valuation of EEA sovereign exposures reflecting current market prices as at 30 September 2011, so as not to give any incentive to withdraw from these commitments. The EBA expects to disclose the final capital shortfall in the middle of November.
Banks requiring capital will have to submit to their respective national authorities their plans detailing the actions they intend to take to meet the higher capital requirements. The objective will be to avoid excessive deleveraging so as to contain the potential impact on the real economy. Primarily, the banks are to raise fresh capital and/or withhold dividends and bonuses. In narrowly defined cases banks shall be permitted to use convertible bonds where these satisfy the EBA’s strict requirements with regard to their conversion conditions and their subsequent capacity to absorb potential losses. Banks shall be permitted to fall back on state aid only if sufficient recapitalisation cannot be achieved by any other means.
In addition to the press release, the EBA has also published on its website numerous questions & answers with further background information as well as a methodological note.
