This year’s Bundesbank symposium “Banking supervision in dialogue” focused on geopolitical risks, artificial intelligence and streamlining bureaucracy. Corinna Egerer and Philipp Otto were the hosts of the event, which was held in Frankfurt and attended by around 450 supervisors and banking industry representatives.

In his speech, Bundesbank Executive Board member Michael Theurer addressed both the burden on banks caused by regulation and bureaucracy as well as the benefits. He saw regulation as being necessary to ensure confidence and stability in the business sector even though it generates costs. He believed it to be important to have a nuanced debate on regulation in order to increase efficiency and reduce red tape” without lowering standards. “Banking regulation and supervision naturally create costs for institutions, Mr Theurer said. However, their benefits for society and the economy exceed the costs.

Mr Theurer also addressed criticism in his speech, mentioning, amongst other things, how regulation and supervision could be optimised, such as by simplifying capital requirements.  He made it clear that the burden of compliance needed to be reduced, yet without watering down standards.  He also said that he could envision a regulatory regime which simplified various EBA guidelines. “We are calling for the CRR and CRD to be made more principles-based rather than rules-based in future.” The Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR) are part of European banking regulation. 

According to Mr Theurer, top-down models should be introduced in the EBA and SSM bank stress tests in order to conserve resources and reduce the burden on institutions. The Bundesbank, he continued, was also working intensively on smart regulation and smart supervision, meaning the use of artificial intelligence (AI), to enhance supervisory efficiency and make life easier for institutions. 

Tobias Tenner from the Association of German Banks spoke about the digital revolution, AI technologies and their impact on small and medium-sized enterprises. Since AI was here to stay, he said, German banks needed to act. By European standards, however, German banks still had room for improvement in the use of AI. Small businesses needed to join alliances in order to effect important investment and not fall behind. 

Michael Kötter, Vice President of the Halle Insitute for Economic Research, spoke about the challenges faced by German institutions in the area of governance. These included geopolitical tensions, remuneration models, climate change and ESG (environmental, social, governance) requirements. 

Rising credit risk and risk provisioning

Karlheinz Walch, Director General Banking and Financial Supervision at the Bundesbank, spoke in his speech about current developments in the banking sector from a supervisory perspective. He highlighted current risks, including rising credit risk (especially in the commercial real estate market), interest rate risk and IT security risk. Credit risk is currently taking centre stage. It is due largely to the persistently subdued economic activity, Mr Walch said. As non-performing loans were likely to increase, banks needed to use their profits to make provisions for risks and to invest in IT security. Mr Walch explained the priorities of the Bundesbank and BaFin’s joint national supervisory programme for 2025: the economic environment, IT security, strengthening governance rules and interest rate developments. He also discussed medium-term priorities such as climate change and sustainability, digital transformation and demographic change. For example, the Bundesbank is already testing and using innovative technologies such as GPT language models and AI-based procedures to improve supervisory processes. 

Panel discussion on geopolitical risks and liquidity

The afternoon session focused on geopolitical risks and their impact on the banking sector. In his talk, Guntram Wolff, professor of economics at the Solvay Brussels School, provided an overview of the current situation. Along with Isabel von Köppen-Mertes (ECB), André Munkelt (Morgan Stanley), Holger Schmieding (Berenberg) and Tamara Weiss (Helaba), he then discussed potential challenges and risks to the world of finance amidst the uncertain geopolitical situation. 

Marcus Chromik (Deutsche Bank), Neil Esho (BCBS), Falko Fecht (Deutsche Bundesbank) and Aerdt Houben (DNB) went on to discuss the causes, effects and prevention of liquidity problems. 

The Bundesbank’s “Banking supervision in dialogue” symposium ranks among the key forums for banking and financial supervisory topics in Germany. The Bundesbank organises the symposium every year, and this year’s was already the 26th of its kind.