Globally Important German Financial System is Resilient

SUMMARY

The financial system of Germany, home to systemically important financial institutions, has been bolstered by EU-wide and global reforms in the financial sector. At the same time, low interest rates and the ongoing transition to new supervisory and resolution mechanisms may pose risks, according to the IMF.

 
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  • Financial system resilient, long-standing issues remain
  • Low profitability of banks, insurers exacerbated by low interest rates
  • German, European authorities should ensure new European financial architecture effective in practice
  • IMF Survey sat down with Michaela Erbenová, Mission Chief for the financial stability assessment, to talk about the outcome of the analysis carried out in systemically important financial markets every five years.

    IMF Survey: What was particular about the German financial sector that you had to take into consideration while preparing the report?

    Erbenová: The German financial sector is very complex in many ways. First of all, there are a large number of institutions in the banking sector: we had to deal with more than 1,700 institutions in our analysis. There are also a large number of insurers. These institutions are of varying degrees of complexity, many share common features, and many are potentially important for financial stability.

    Germany’s financial sector is also characterized by a high degree of interconnectedness. Our analysis showed that because of this close connection, authorities should continue to closely monitor banks and life insurers and carry out their systemic risk analyses.

    Germany is also home to global systemically important institutions, including the insurer Allianz SE, the bank Deutsche Bank AG, as well as the clearing house Eurex Clearing AG, which provides services to almost 190 clearing members from a large number of countries. This creates an additional layer of international interconnectedness that our analysis had to take into account: outside influences can affect developments in Germany, and what happens in the German financial system can have major repercussions around the world. This potentially global impact makes risk management, intense supervision of systemic institutions and the close monitoring of their cross-border exposures particularly important.

    IMF Survey : What is your overall assessment of the German financial sector? What has changed since the last review in 2011?

    Erbenová: The assessment built on the previous findings of the 2011 analysis, but in many ways it was a completely different task.

    First, following the financial crisis, a transformation of the financial sector is clearly underway, with many institutions reconsidering their business model. In particular, the Landesbanken sector—a group of regionally organized, state-owned banks—has seen important...

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