68 German banks have failed the Bundesbank's stress tests. This was communicated by the central institute of Frankfurt, specifying that, out of 1.550 institutions monitored, "about 4,5% would not comply with the prudential minimums envisaged". In other words, they would not be able to overcome any shocks to interest rates and the housing market.
The banks subjected to the tests are those considered non-systemic, with assets of less than 30 billion euros and therefore subject to direct supervision by the Bundesbank rather than the ECB.
The German central institute limited itself to announcing the number of rejected banks, without specifying their names. On the other hand, even this partial communication is surprising, as it is not obligatory.
According to various commentators, this would be an indirect warning to the European Central Bank, a way of putting the risks on paper which would bring with it a further extension of the ultra-expansive monetary policy, which has always been disliked by the Germans.
Indeed, the Bundesbank underlines that the number one problem of German banks is low profitability, which would be reduced by 40% if interest rates remained stable until 2021 and even by 60% in the event of a further (and improbable) reduction of 100 basis points.
But the stress tests also point to another potential problem: housing credit. Argument on which the Bundesbank becomes ambiguous. On the one hand Andreas Dombret, a member of the Buba board, says he does not see "any bubble in real estate that could cause concern", on the other he admits that "Germany's main towns and cities have experienced a rise in real estate prices of between 15% and 30% above the level justified by the fundamentals” and that the risks associated with the residential mortgage sector are “significant”.
The stress tests simulate, in the extreme scenario, a collapse in prices of 30%: in this case "the small and medium-sized German banks should launch an additional capital increase of around 12 billion to bring the Cet 1 back to its original levels" and the contagion effect could "considerably" aggravate the negative consequences for the German credit market.
