## GERMANY — Financial System Stability Assessment (FSAP Update), June 20, 2011 ## Source details **Canonical URL:** [GERMANY — Financial System Stability Assessment (FSAP Update), June 20, 2011](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11169.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11169.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11169.pdf.json) --- ### Executive summary — key findings - The German financial system is recovering from the global crisis, yet low profitability hampers many banks’ ability to build stronger buffers against shocks that could hit the global economy and especially Europe. - Structural reforms are overdue. The Landesbanken require thorough restructuring and probably downsizing, but the imperative to loosen constraints and strengthen banks’ commercial orientation is more general. - The standard of financial sector regulation and supervision is high. The crisis showed that more timely information, additional on-site supervision, and follow up through forward-looking supervisory action are needed. - The framework to manage financial crises has been enhanced significantly, particularly with the introduction of a new bank resolution regime. Deposit protection schemes need to be rationalized, and Germany should actively help efforts to develop mechanisms to deal with cross-border crises. ### Financial stability vulnerabilities and systemic risks - Crisis impact and concentration: - Crisis impact concentrated on exposures abroad and funding strains for certain banks; domestic loan portfolio was relatively robust during the short, sharp recession. - Important remaining vulnerabilities: - Some banks suffer from balance sheet fragilities. - Widespread low profitability will make it challenging to raise the level and quality of capitalization under Basel III and tougher market conditions. - Particular institutions have concentrated exposures to vulnerable European countries. - Certain Landesbanken are especially exposed to a spike in funding costs. - Larger banks and some private banks are vulnerable to liquidity risk due to heavy reliance on wholesale funding. - Risk scenarios highlighted (selected from Risk Assessment Matrix): - Sharp “double dip” recession: Likelihood: Low; Impact considerations: Medium. - Very slow growth in Europe and low interest rates: Likelihood: Medium; Impact considerations: High. - Sustained high sovereign risk: Likelihood: Medium; Impact considerations: Medium to High. - Regulatory uncertainty and regulatory burden: Likelihood: High; Impact considerations: Low. - Sustained dislocation in funding markets: Likelihood: Medium; Impact considerations: Medium. ### Banking sector — performance, stress testing, and structural pressures - Bank performance and indicators: - Return on average assets (after-tax): series includes 0.3, 0.3, 0.2, -0.3, -0.1, ... - Return on average equity (after-tax): series includes 9.2, 7.5, 4.7, -8.1, -2.0, ... - Regulatory capital to risk-weighted assets (total): 12.2, 12.5, 12.9, 13.6, 14.8, 14.7, 16.1. - Regulatory Tier I capital to risk-weighted assets: 8.0, 8.2, 8.5, 9.5, 10.8, 10.8, 11.8. - Structural pressures: - Low profitability (even when adjusted for risk) and inefficient use of public resources; phasing out of hybrid capital will add to challenges. - Landesbanken reform widely accepted; viable restructuring may involve considerable downsizing and reform of governance structures. - Mutual protection schemes imply that difficulties in Landesbanken burdened savings banks; recommended supervisory and accounting measures to reveal costs of schemes. - Covered bonds (Pfandbrief) market: generally resilient; over-collateralization and legal protections create potential asset encumbrance and resolution complications. - German securitization markets are nascent and thin; likely to remain complementary to Pfandbrief. ### Stress testing — design, scenarios, and key results - Framework and coverage: - Two complementary approaches: (a) bank-by-bank balance sheet approach applied to almost all German banks (about 1,700 banks — 87 percent of system mentioned; other counts refer to ~1,900 universal banks / 100 percent), and (b) a market-based systemic CCA (SCCA) approach for 13 largest banks (~40 percent of system). - Risk horizon: Scenario tests for 5 years (2011–15); sensitivity tests immediate; liquidity horizons 1 week, 1 month, 1 year depending on test. - Macroeconomic scenarios over 2011–2015: - Baseline: October 2010 WEO projections. - (a) Sharp “double-dip” recession with oil price shock, decline in foreign demand, and a spike in short-term interest rates (Scenario 1 described as 2 standard deviations GDP decline with respect to baseline, maximum 5.4 percentage point deviation). - (b) Prolonged period of very low growth (Slow Growth scenario: cumulative 4.0 percentage point deviation). - Scenario 3 (supplementary): 2.6 SD with respect to baseline; sensitivity analysis up to 50 percent increase in loss rates. - Core stress-test findings: - Balance sheet-based core tests indicate overall resilience to stress, including prolonged slow growth, but several pockets of vulnerabilities remain. - Total amount of capital needed to meet Basel III standards is considerable; in most cases need can be met out of retained earnings. - Many banks are profitable enough to build substantial buffers under any scenario; others might have to de-leverage and, in some cases, a capital shortfall remains. - Larger banks (SIFIs) are more susceptible to funding cost risk; weaker banks could face adverse feedback between relatively low capitalization and high costs. - For smaller banks, slow growth is less problematic than the “double-dip/interest rate spike” because a steeper yield curve supports maturity transformation profits. - Liquidity stress testing: - Implied cash flow test assumptions: cumulative outflow of about 60 percent of wholesale funding and 15 percent of customer deposits over specified horizons. - Most banks can cope with major liquidity shocks, yet reliance on wholesale funding is a concern for large banks and many private banks. - Metrics and Basel III: - Tests accounted for phased adjustment of minimum capital ratios, increase in RWA foreseen at end-2011, and gradual adjustment of eligible capital. - Hurdle rates include Tier 1 and CAR capitalization (Basel III ratios depending on year); supplementary hurdle rate added a 2.0 percentage point voluntary buffer to core Tier 1/Tier 1. ### Supplementary stress-test findings and sensitivity analysis - Public-data SIFI analysis: - Estimated capital shortfall slightly lower at €1.5 billion when supervisory data are not used. - If all claims on the most vulnerable sovereigns (Greece, Ireland, Italy, Portugal, Spain, Belgium) and related bank claims are subject to a market-implied “haircut”: - Gross losses of €23 billion in 2011; accounting for positive valuation effects in outer years, losses would be €17 billion at end-2015. - Many banks can absorb losses in capital buffers and profits; a few cases would result in an additional Tier 1 capital shortfall totaling €1.8 billion. - Hypothetical extreme-write-down: a severe write down of 60 percent of sovereign claims on Greece, Ireland, and Portugal estimated to cost banks: - €42 billion in 2011, and €36 billion by 2015; - Hypothetical additional Tier 1 capital shortfall of €14 billion. - Sensitivity outcomes: - Adding an additional capitalization buffer of 2 percentage points and a larger fall in GDP materially increases the capital shortfall. - Measured against core Tier 1 where the hurdle rate rises to 4.5 percent by 2015, the capital shortfall would be at least half again larger. - Market perceptions have deteriorated since the stress-testing exercise; larger losses would be incurred if these risks are realized. - Market-based SCCA results: - “Residual risk” for the largest banks has fallen from crisis peaks and is now well below those banks’ common equity. - Under baseline, residual risk projected to fall slowly; under “double-dip” with rising short rates, residual risk stays relatively elevated; under slow growth residual risk gradually rises. - A small number of banks generate the bulk of systemic effects; concentration of systemic risk in a few banks increased sharply at the onset of the credit crisis. - “Residual risk” measured as the 95th percentile of the distribution of possible losses, relative to its level in September 2008. ### Regulatory and supervisory system — strengths, gaps, and recommendations - Strengths: - Overall standard of regulation and supervision is high; multiple improvements implemented since the 2003 FSAP and in response to global and European reforms. - BaFin possesses a good deal of de jure and de facto independence; Bundesbank responsible for ongoing monitoring and proposed to expand macroprudential capacity. - Gaps and cross-cutting supervisory actions needed: - Strengthen direct supervision and on-site supervision; address serious data gaps. Reliance on external auditors causes lags; some data that capture new threats are unavailable; relevant statistics are published with long lags. - Make supervisory action more forward-looking with a consistent and well-documented ladder of supervisory actions (including but not restricted to imposition of higher capital requirements) based on business model and systemic risk contribution. - Clearly define Bundesbank’s macroprudential responsibilities and powers to include identifying systemic risks and formulating recommendations for mitigation, including structural reforms. - German supervisory authorities should take a leadership role in extending and deepening cooperation and information sharing to support macroprudential analysis at national and European levels. - Grant supervisors power to vet in advance bank acquisitions of subsidiaries. - Microprudential and sectoral recommendations: - Continue to improve stress testing for banking and insurance, with attention to longer-term risks, liquidity risk, and group-wide spillovers. - Rigorously ensure that any financial institution that displays weaknesses on a forward-looking basis strengthens its balance sheet and takes managerial action. - Keep reporting requirements under review to ensure timely systemic information and shorten publication lags. - Continue to strengthen on-site supervision. - For insurance: prepare for Solvency II implementation (expected in 2013) and enhance group-wide supervision. ### Macroprudential policy, SIFIs, levies, and consolidated supervision - Macroprudential arrangements and responsibilities: - Define the role of the Bundesbank as macroprudential supervisor, and institute free exchange of information between macro and microprudential supervisors. - Consider an “act or explain” requirement if public argumentation fails to elicit action by other authorities. - SIFIs and bank levy: - Consider increasing loss absorbency of large German SIFIs (e.g., SIFI surcharges). - Bank levy should capture degree of SIFIs’ contribution to systemic risk and interconnectedness; proposed calibration may appear too low to effect behavioral change or build adequate restructuring fund. - Authorities should retain flexibility to reassess levy calibration; SCCA analysis can provide a basis for calibration. - Consolidated supervision: - Strengthen consolidated supervision of financial conglomerates and cross-border groups; continue vigilance on cross-sector risks. ### Crisis management, bank resolution, DGS, and cross-border arrangements - New bank restructuring law (in force since January 2011) — features and implementation needs: - Introduces mechanisms such as transferring a bank’s business to another institution or a bridge bank; grants BaFin power to transfer banking business (exercise in agreement with FMSA if resources needed). - Other instruments: stronger remedial powers, reorganization procedures involving courts, and appointment of a special administrator. - Implementation needs include clarifying interagency coordination between BaFin and the FMSA and ensuring the restructuring fund’s financial strength. - Restructuring fund and contingency funding: - New restructuring fund administered by the FMSA; initial resources are being limitedly built up by means of the bank levy; contingency funding arrangements (special assessments, residual borrowing authority from SoFFin) remain important. - Clarify interaction between restructuring fund, DGSs, and mutual guarantee schemes; stakeholders (including mutual protection schemes) should first share in any burden; in systemic cases, the restructuring fund may be tapped. - Depositor protection regime — key findings and recommendations: - German DGS regime is highly fragmented, prefunding is very limited, and features lack transparency. - Coverage level: The statutory DGS coverage level of €100,000 appears broadly appropriate because it covers more than 90 percent of retail deposit accounts. - Recommendations: - Reform the DGS regime by instituting a harmonized and legally binding deposit guarantee of €100,000, backed by adequate prefunding, and appropriately linked to the restructuring mechanism. - Modify mutual protection schemes to ensure depositors have a legal claim for the reimbursement of €100,000 (including legal framework changes as needed). - Cap legally binding coverage at a level that can be readily funded; require pillar schemes to build up adequate prefunding. - Make key information on the actual financial strength of the various schemes public to enhance transparency. - Cross-border crisis management: - BMF, BaFin, and Bundesbank established a standing committee acting as a “single point of contact” for foreign authorities in cross-border crises; crisis management groups set up for institution-specific issues. - Develop concrete procedures and tools for handling potential failure of German global banks, including burden-sharing arrangements and definition of resolution plans. - Consider an explicit legal requirement for establishment of resolution plans for systemically relevant banks; consider a special resolution regime for nonbank SIFIs. ### Main FSAP Update recommendations (selected, with responsibility and timeframe) - Structural issues: - Develop a comprehensive strategy aimed at improving the efficiency and stability of the banking system, including: - (a) urgently establishing viable business models for the Landesbanken (Responsibility: BMF, BaFin, Bundesbank. Timeframe: Short term (a)); - (b) loosening the regional constraints under which local banks operate (Timeframe: Medium term (b–d)); - (c) opening up the public banks to private participation; - (d) strengthening these banks' governance to reduce noncommercial influences. - Microprudential supervision: - Continue to improve stress testing in the banking and insurance sectors (Responsibility: Bundesbank, BaFin. Timeframe: Medium term). - Rigorously ensure that any financial institution that displays weaknesses on a forward-looking basis strengthens its balance sheet and takes managerial action (Responsibility: BaFin. Timeframe: Short term). - Grant supervisors power to vet in advance bank acquisitions of subsidiaries (Responsibility: BMF. Timeframe: Medium term). - Keep reporting requirements under review and shorten publication lags (Responsibility: Bundesbank, BaFin. Timeframe: Short term). - Continue to strengthen on-site supervision (Responsibility: BaFin. Timeframe: Medium term). - Macroprudential supervision: - Define the role of the Bundesbank as macroprudential supervisor and institute free exchange of information between macro and microprudential supervisors (Responsibility: BMF, BaFin, Bundesbank. Timeframe: Short term). - Crisis management and bank resolution: - Ensure the financial strength of the new bank restructuring fund and clarify interaction between the restructuring fund and various DGS and mutual protection schemes (Responsibility: BMF. Timeframe: Medium term). - Reform the DGS regime by instituting a harmonized and legally binding deposit guarantee of €100,000, backed by adequate prefunding (Responsibility: BMF, BaFin, Bundesbank. Timeframe: Short term). - Finalize strategies for exiting government support to banks and require affected banks to formulate strategic plans (Responsibility: BMF. Timeframe: Short term). ### Data, sectoral highlights, and selected statistics - Demography and macro: - Population headline: 81.6 million. - GDP per capita (2010): US$ 40,631. - External and funding: - Germany’s gross foreign assets as per the end of 2010 are estimated at about 258 percent of GDP; net foreign assets are almost 42 percent of GDP. - Exports amount to about half of GDP. - Banking sector aggregates and indicators (selected series and snapshots): - Foreign claims of German banks (share of total bank assets): All countries: 30.5 (end-2009) → 26.9 (end-2010); Euro-area member states: 12.7 → 10.7; United Kingdom: 4.6 → 4.2; United States: 4.9 → 4.4. - Depository institutions snapshots (selected): 2003: 2,199 institutions, 36,575 branches, 725,550 employees, assets 6,299 (76.8 percent); 2008: 1,981 institutions, 39,531 branches, 685,550 employees, assets 7,956 (79.3 percent); 2009: 1,939 institutions, 39,411 branches, 673,500 employees, assets 7,510 (77.0 percent); 2010: 1,919 institutions, 8,455 branches, ... - Core FSIs and sector tables (selected values preserved as reported): - Regulatory capital to risk-weighted assets (total): 12.2, 12.5, 12.9, 13.6, 14.8, 14.7, 16.1. - Liquid assets to total short-term liabilities: 122.0, 120.9, 119.4, 120.3, 144.1, 138.6, 137.0. - Customer deposits to total (non-interbank) loans: 71.8, 75.2, 76.2, 77.7, 76.5, 74.6, 73.6. - Insurance and pension sectors (selected): - Life insurance total assets (selected): 688.1, 716.3, 734.2, 758.7, 778.2, 773.0, 804.2, ... - Government securities of life insurers’ investments: 68.2, 85.3, 97.5, 101.2, 103.8, 106.5, 127.0, 138.9. - Corporate pension liabilities amount to about 10 percent of GDP; current discount rate applied is 5.1 percent. - Central counterparty and clearing statistics (Eurex, selected): - Derivatives (Euro billions): 1,526.8; 1,899.8; 2,165.0; 1,687.2; 1,896.9. - Value of contracts and transactions cleared: 108,039.4; 127,156.4; 116,757.3; 80,525.9; 99,838.9. - Average daily value of transactions: 423.75; 504.64; 459.73; 317.03; 390.0. - Clearing fund (EUR millions): 752; 895; 1,392; 1,259; 912. *Source: IMF Financial Sector Assessment Program (FSAP) Update mission report for Germany, June 20, 2011.* ### 2011. The vie ### GERMANY — Financial System Stability Assessment (FSAP Update), June 20, 2011 ### Executive summary — key findings - The German financial system is recovering from the global crisis, yet low profitability hampers many banks’ ability to build stronger buffers against shocks that could hit the global economy and especially Europe. - Structural reforms are overdue. The Landesbanken require thorough restructuring and probably downsizing, but the imperative to loosen constraints and strengthen banks’ commercial orientation is more general. - The standard of financial sector regulation and supervision is high. The crisis showed that more timely information, additional on-site supervision, and follow up through forward-looking supervisory action are needed. - The framework to manage financial crises has been enhanced significantly, particularly with the introduction of a new bank resolution regime. Deposit protection schemes need to be rationalized, and Germany should actively help efforts to develop mechanisms to deal with cross-border crises. ### Financial stability vulnerabilities and systemic risks - Crisis impact concentrated on exposures abroad and funding strains for certain banks; domestic loan portfolio was relatively robust during the short, sharp recession. - Important remaining vulnerabilities: - Some banks suffer from balance sheet fragilities. - Widespread low profitability will make it challenging to raise the level and quality of capitalization under Basel III and tougher market conditions. - Particular institutions have concentrated exposures to vulnerable European countries. - Certain Landesbanken are especially exposed to a spike in funding costs. - Larger banks and some private banks are vulnerable to liquidity risk due to heavy reliance on wholesale funding. ### Banking sector — performance, stress testing, and structural pressures - Banks must adapt strategies to meet rising regulatory requirements on level and quality of capital and liquidity, and intense competition. - Landesbanken: most will have to adopt more viable business models; given heterogeneity, substantial downsizing rather than simple consolidation is likely needed. - Suggested elements to improve system efficiency and stability: - Acknowledge limitations of mutual protection schemes run by banking associations. - Open public sector banks to private participation. - Concretize strategies for exiting government support to banks. - Stress testing and analysis indicate robustness to many shocks, but concentrated exposures and funding/lending profiles create material downside risks. ### Regulatory and supervisory system — strengths and gaps - Overall standard of regulation and supervision is high; multiple improvements implemented since the 2003 FSAP and in response to global and European regulatory reforms. - Cross-cutting supervisory actions needed: - Strengthen direct supervision and on-site supervision; address serious data gaps. Reliance on external auditors causes lags; some data that capture new threats are unavailable; relevant statistics are published with long lags, weakening market discipline. - Make supervisory action more forward-looking with a consistent and well-documented ladder of supervisory actions (including but not restricted to imposition of higher capital requirements) based on business model and systemic risk contribution. - Clearly define Bundesbank’s macroprudential responsibilities and powers to include identifying systemic risks and formulating recommendations for mitigation, including structural reforms. - German supervisory authorities should take a leadership role in extending and deepening cooperation and information sharing to support macroprudential analysis at national and European levels. ### Crisis management and bank resolution - New bank restructuring law introduces mechanisms such as transferring a bank’s business to another institution or a bridge bank, significantly strengthening the crisis management framework. - Important implementation needs: - Integrate deposit guarantee schemes (DGS) and mutual protection schemes. - Predefine procedures for dealing with very large institutions. - Ensure financial strength of the new restructuring fund; it will accumulate only slowly. - Reform the DGS regime by instituting a harmonized and legally binding deposit guarantee of €100,000, backed by adequate prefunding, and appropriately linked to the restructuring mechanism. - Enhance transparency regarding schemes’ financial strength. - Develop concrete procedures and tools for handling the potential failure of German global banks (and global banks operating in Germany), including burden sharing arrangements and definition of resolution plans. ### Main FSAP Update recommendations (selected, with responsibility and timeframe) - Structural issues - Develop a comprehensive strategy aimed at improving the efficiency and stability of the banking system, which includes: (a) urgently establishing viable business models for the Landesbanken; (b) loosening the regional constraints under which local banks operate; (c) opening up the public banks to private participation; and (d) strengthening these banks' governance to reduce noncommercial influences. Responsibility: Federal Ministry of Finance (BMF), Federal Financial Supervisory Authority (BaFin), Bundesbank. Timeframe: Short term (a), Medium term (b–d). - Microprudential supervision - Continue to improve stress testing in the banking and insurance sectors, for example, with respect to longer-term risks, liquidity risk, and group-wide spillovers. Responsibility: Bundesbank, BaFin. Timeframe: Medium term. - Rigorously ensure that any financial institution that displays weaknesses on a forward-looking basis strengthens its balance sheet and takes managerial action. Responsibility: BaFin. Timeframe: Short term. - Grant supervisors power to vet in advance bank acquisitions of subsidiaries. Responsibility: BMF. Timeframe: Medium term. - Keep reporting requirements under review to ensure that timely and systemic information is available on emerging risk factors, and shorten publication lags. Responsibility: Bundesbank, BaFin. Timeframe: Short term. - Continue to strengthen on-site supervision. Responsibility: BaFin. Timeframe: Medium term. - Macroprudential supervision - Define the role of the Bundesbank as macroprudential supervisor, and institute free exchange of information between macro and microprudential supervisors. Responsibility: BMF, BaFin, Bundesbank. Timeframe: Short term. - Crisis management and bank resolution - Ensure the financial strength of the new bank restructuring fund, and clarify the interaction between the restructuring fund and the various DGS and mutual protection schemes. Responsibility: BMF. Timeframe: Medium term. - Reform the DGS regime by instituting a harmonized and legally binding deposit guarantee of €100,000, backed by adequate prefunding. Responsibility: BMF, BaFin, Bundesbank. Timeframe: Short term. - Finalize specific strategies for exiting from the government support to banks, and require the affected banks to formulate strategic plans. Responsibility: BMF. Timeframe: Short term. *Source: IMF Financial Sector Assessment Program (FSAP) Update mission report for Germany, June 20, 2011.* ### 1. The global financial crisis severely affected the German economy, especially ### 1. The global financial crisis severely affected the German economy, especially ### Crisis impact and policy response - The global financial crisis severely affected Germany, especially due to the contraction in world trade in 2008–09; exports initially declined but have since led the recovery. - Employment was robust despite a sharp contraction followed by a rebound. - Fiscal balance deteriorated and public debt stock jumped due to financial stability support measures, stimulus measures and cyclical factors. - The European Central Bank (ECB) policy allowed interest rates to fall to unprecedentedly low levels and facilitated the availability of liquidity in euros and U.S. dollars. - Authorities introduced a comprehensive financial stability framework in October 2008, including: - Establishment of the Federal Agency for Financial Market Stabilization (FMSA) to administer the Special Fund for Financial Market Stabilization (SoFFin). - Financial stability support measures: guarantees, recapitalizations, asset purchases, and establishment of winding-up institutions. - Additional assistance from the Länder for some banks. - Complementary public measures: credit programs for SMEs by development banks and fiscal stimulus. - In international comparison, measures are large in absolute terms, but not very large as a percentage of GDP if portfolios of winding-up institutions are excluded. ### Financial system structure and evolution - The banking system is a “three pillar” system: private banks; savings banks and the associated Landesbanken; cooperative bank networks. - High portion of public banking and significant role of savings bank and cooperative pillars bound by mutual guarantees, vertical ownership ties, integrated operating systems, the “regional principle,” and legal restrictions on changing ownership form. - The banking sector accounts for the majority of total financial sector assets; German industry is more reliant on bank financing than many other advanced economies. - Smaller banks are domestically oriented; major banks and apex organizations have significant exposures abroad via branches, subsidiaries, cross-border lending, and market operations. - Some German insurance and reinsurance companies are among the largest in the world; securities markets are active and well-integrated; assets under management are large. - Structure remained broadly unchanged over the past decade with some consolidation and foreign entry; privatization of the postal savings bank reduced share of government-owned banks; several Landesbanken were incorporated and/or vertically integrated with Sparkassen. ### Persisting structural and supervisory issues - Issues identified in the 2003 FSAP remain broadly relevant: - Need to enhance competition and structural development by reducing rigidity of the “three pillar” system (aim: reform the Landesbanken). - Increase transparency of public banks. - Improve specific aspects of the legal framework, regulation, and especially supervision. - Authorities have made efforts to enhance supervisory practice, but mutual guarantees, limits on competition, and the three-pillar structure remain largely intact. ### Systemic vulnerabilities and international linkages - Key vulnerabilities identified (see Risk Assessment Matrix in Appendix II): - Prolonged slow growth in Germany and possibly major export markets, especially if accompanied by low interest rates. - A renewed recession in advanced economies and important emerging market importers, possibly from renewed financial uncertainty or a spike in commodity and energy prices. - Intensification or widening of concerns over sovereign risk; large unpredictable impacts if fiscal sustainability in larger countries came into question or generalized uncertainty became pervasive; possible deterioration in creditworthiness of subnational governments. - Reemergence of funding market strains, possibly in conjunction with other vulnerabilities. - Regulatory uncertainty and burden, including effects of Basel III on capital requirements, which may weigh on financial institutions and supply of financial services. - International connectedness: - German financial institutions have substantial exposures to financial and private sectors across Europe, the U.S., and other regions. - Banks’ foreign claims make up over a quarter of total assets, with especially large claims on the United Kingdom and the U.S. - Germany’s gross foreign assets as per the end of 2010 are estimated at about 258 percent of GDP; net foreign assets are almost 42 percent of GDP. - Exports amount to about half of GDP. - Funding markets are highly internationalized; gross volumes in both euro and U.S. dollars are large. ### Banking system performance and indicators - Financial soundness indicators (FSIs) point to stability of the banking system overall, with differences across pillars. - Many FSIs (e.g., NPL ratio) have been only weakly related to cyclical factors in recent years. - Average regulatory capital ratios are rising, but leverage remains high, especially in investment banking-oriented commercial banks. - Savings and cooperative pillars display strong liquidity indicators and much lower loan-to-deposit ratios than private commercial banks. - Profitability concerns: - Return on equity (ROE) has been persistently low, especially for the Landesbanken. - On a risk-adjusted basis the system performs poorly compared to European peers. - Bank earnings were mediocre before the crisis, then collapsed or turned negative during the crisis; earnings rebounded in 2010 and early 2011. - Cross-country comparisons and indicators highlighted: - German banks are adequately capitalized but highly leveraged compared with peers. - NPLs comparable with peers; NPLs net of provisions are substantially higher. - German banks exhibit poor profitability relative to peers. ### Stress-testing: design and scenarios - Cooperative stress-testing with the Bundesbank: core tests based on bank-by-bank supervisory data (Bundesbank); supplementary analysis based on publicly available data (IMF staff). - Solvency tests covered five years and almost the entire German banking system, examining a range of soundness measures and behavioral feedback mechanisms; included liquidity risk assessment. - Two macroeconomic stress scenarios over 2011–2015: - (a) Sharp “double-dip” recession associated with an oil price shock and a decline in foreign demand, with policy reaction leading to a significant “spike” in short-term interest rates and lower long-term rates. - (b) Prolonged period of very low growth. - Baseline scenario benchmarked to October 2010 World Economic Outlook (WEO) projections. ### Stress-testing: key results and implications - Balance sheet-based core tests indicate: - German banks are, overall, in a position to cope with stress, including prolonged slow growth, but several pockets of vulnerabilities remain that should be addressed timely. - Banks’ portfolios are robust against conjunctural fluctuations. - Total amount of capital needed to meet Basel III standards is considerable; in most cases need can be met out of retained earnings. - Many banks are profitable enough to build substantial buffers under any scenario; others might have to de-leverage and, in some cases, a capital shortfall remains. - Further arranged consolidation is likely. - For smaller banks, the slow growth scenario is projected to be less problematic than the “double-dip/interest rate spike” because a steeper yield curve supports maturity transformation profits. - The larger banks (systemically important financial institutions—SIFIs) are more susceptible to funding cost risk, which for weaker banks could cause adverse feedback between relatively low capitalization and high costs. - Supplementary tests corroborate that secular effects of low profitability are pervasive: - Across pillars low profitability implies most banks would earn only low return on capital (ROC) and thus be constrained in paying dividends to attract capital even in a relatively benign macro environment. - Factors reducing profitability, such as a flat or inverted yield curve, amplify these effects. - Stress-testing outputs include projected Tier 1 ratios and numbers/amounts of banks with capital shortfalls under Baseline, Double Dip & Interest Rate Spike, and Slow Growth scenarios for 2010–2015 (see core tables and figures in the report). - Projected return on capital (ROC) and dividend yield series are presented for 2011–2015 under baseline, “double dip,” and slow growth scenarios for SIFIs, savings banks, and cooperative banks. *Source: IMF Financial Sector Assessment Program (FSAP) Update — Germany (excerpts as provided).* ### 18. The supplementary tests suggest, furthermore, that the capital shortfall may ### 18. The supplementary tests suggest, furthermore, that the capital shortfall may ### Supplementary stress-test findings (SIFIs, publicly available data) - Analysis based on publicly available data produces results similar to supervisory-data-based results; the estimated capital shortfall is slightly lower, at €1.5 billion, than when supervisory data are used. - If all claims on the most vulnerable sovereigns (Greece, Ireland, Italy, Portugal, Spain, Belgium) and related claims on banks are subject to a “haircut” inferred from market prices: - Gross losses of €23 billion in 2011; accounting for positive valuation effects in the outer years, losses would be €17 billion at end-2015. - Many banks can absorb losses in capital buffers and profits; in a few cases, these losses would result in an additional capital shortfall totaling €1.8 billion for Tier 1 capital. - Market perceptions have deteriorated since the stress-testing exercise; larger losses would be incurred if these risks are realized. - If turmoil spreads to larger countries more closely tied to Germany, the impact through solvency and funding channels might become much larger, but such scenarios are inherently characterized by great uncertainty. ### Sensitivity scenarios and implications - Adding an additional capitalization buffer of 2 percentage points and a larger fall in GDP materially increases the capital shortfall. - Measured against core Tier 1 where the hurdle rate rises to 4.5 percent by 2015, the capital shortfall would be at least half again larger. - The results underscore that strengthening the quality of capital should be a priority, especially for banks with capital of relatively low loss-absorption capacity. ### Supplementary hypothetical extreme-write-down illustration - A hypothetical severe write down of 60 percent of sovereign claims on Greece, Ireland, and Portugal is estimated to cost banks: - €42 billion in 2011, and €36 billion by 2015; - The hypothetical additional Tier 1 capital shortfall would be €14 billion. ### Small private banks and sensitivity analysis - Smaller private banks appear relatively more vulnerable than others to potential credit losses, albeit with wide dispersion. - Single-factor tests indicate vulnerabilities but are limited in scope (see Table 4 in source). ### Market-implied residual risk (SCCA results) - The “residual risk” for the largest banks has fallen from peaks during the crisis, and is now well below those banks’ common equity. - Under the baseline scenario, residual risk is projected to fall slowly. - Under the “double-dip” scenario where short interest rates rise, residual risk stays relatively elevated. - Under the slow growth scenario, residual risk gradually rises to a level comparable to that achieved under the “double dip.” - A small number of banks generate the bulk of systemic effects; concentration of systemic risk in a few banks increased sharply at the onset of the credit crisis. - “Residual risk” is measured as the 95th percentile of the distribution of possible losses, relative to its level in September 2008. ### Liquidity and funding vulnerabilities - Most banks are able to cope with major liquidity shocks, yet reliance on wholesale funding is a concern for some banks. - The large banks and many private banks would be most exposed to a sudden withdrawal of wholesale funding. - Smaller German banks, especially Sparkassen and cooperative banks, benefit from broad deposit bases and ample holdings of high-grade securities. - Enhancements to stress testing for liquidity recommended include stress tests in euro and U.S. dollar, and of concentration risk. ### Recommendations to enhance Bundesbank stress-testing and supervision - More complete coverage of the banking sector. - A longer time horizon to identify potential structural vulnerabilities. - Calculation of a range of metrics, including core Tier I and profitability measures. - Better modeling of funding cost risk, including those of U.S. dollar funding. - Enhanced stress tests of liquidity in euro and U.S. dollar, and of concentration risk. ### Structural pressures and reform priorities - The banking system faces low profitability (even when adjusted for risk) and inefficient use of public resources; phasing out of hybrid capital will add to challenges. - The need for a thorough reform of the Landesbanken is widely accepted, though political consensus is elusive; viable restructuring may involve considerable downsizing and reform of governance structures. - Mutual protection schemes have implied that difficulties in Landesbanken burdened savings banks; supervisors should: - Require participants to make provisions against “expected” losses (perhaps via insurance premia estimated on a robust basis). - Impose a capital charge for “unexpected” losses to reveal the true costs of the schemes. - Strengthen supervisory oversight, especially where Pillar 3 market discipline is weaker (public/cooperative sector). - Greater flexibility in ownership structures and loosening the “regional principle” could bring efficiency, capital management, and market-discipline benefits; changes should be implemented over time with immediate focus on acute Landesbanken problems. - Shifting toward longer-term financing could raise funding costs if rating agencies give less weight to mutual guarantee schemes; covered bonds (Pfandbrief) and securitization can help but these markets may need to adapt to a more risk-sensitive environment. ### Covered bonds and securitization (Box 1 highlights) - The Pfandbrief market held up relatively well during the crisis and benefited from the ECB’s Covered Bond Purchase Program (CBPP). - Pfandbrief are over-collateralized, represent privileged claim (“dual recourse”), and benefit from a strong legislative framework and BaFin’s role in collateral supervision. - Issuers face pressure from stringent over-collateralization and liquidity requirements by rating agencies. - Extensive legal protections for Pfandbrief imply potential encumbrance of banks’ highest quality assets and complicate resolution incentives; recent legislative reforms aim to reduce these concerns. - German securitization markets are nascent and thin; securitization has played and will probably continue to play a minor role, complementary to Pfandbrief. ### Insurance, corporate, and household sector highlights - Insurance sector: moderate effect from the global financial crisis; robust to funding market disturbances; exposure to high-risk securities is limited; adequate solvency and relatively low, stable profitability except reinsurance (Appendix IV Table 4.6). - Life insurance and pension funds face challenges from the low interest rate environment; insurers could cope with low rates for at least five years due to conservative accounting, but strains may build over time. - Household sector: aggregate indicators point to considerable strength; consumer loans and mortgages are proportionately lower than in many advanced economies; retail mortgages tend to be at fixed rates; real estate prices have been flat after the post-reunification boom. - Nonfinancial corporate sector: survived the crisis relatively well with aggregate profitability maintained; corporate bond spreads fell back to 2008 levels; bank borrowing remains relatively high in international comparison. - Corporate pension liabilities exceed half of total pension claims and amount to about 10 percent of GDP; current discount rate applied is 5.1 percent. *Source: Staff estimates based on publicly available data.* ### 35. While BaFin has a mandate to regulate and supervise the national financial ### _cr11169 - 35. While BaFin has a mandate to regulate and supervise the national financial ### Institutional roles, governance, and independence - BaFin: mandate to regulate and supervise the national financial system; possesses a good deal of de jure and de facto independence. - Bundesbank: responsible for the ongoing monitoring of the banking system and stability; proposed to expand macroprudential capacity. - BMF (Federal Ministry of Finance): oversees BaFin and has formal regulatory powers; legal and supervisory control of BaFin operations focuses on legality and fitness for purpose of BaFin’s administrative actions ex post and does not provide for ex ante involvement in supervisory decisions. - State-level and other responsibilities: some subnational elements are assigned to state governments (e.g., state Exchange Supervisory Authorities); the Federal Ministry of Food, Agriculture, and Consumer Affairs has some responsibilities regarding consumer protection. - Cooperation mechanisms: several committees established to facilitate cooperation; external auditors check compliance and report material deficiencies; savings and cooperative banking sector associations actively supervise their members. - Concerns and diffusion of responsibility: - Unclear boundary between “implementation of policy and technical issues” (left to supervisors) and “political” matters (sphere of government). - Possibility of appearance of deference to vested interests or narrow interpretation of legal powers. - During the crisis, the government exercised prerogative to initiate and issue regulations on matters that would normally be microprudential (example: conditions for short selling). - Reform efforts: - Debate on merger between BaFin and Bundesbank (at least for banking supervision) was replaced by an alternative reform agenda. - A 10-point plan has been put forward (but not yet adopted); it contains elements such as strengthening BaFin’s intervention powers and independence, ensuing conditions to retain qualified staff, and reforming BaFin financing and administration. - BaFin is financed from the industry. ### Cross-border cooperation and European engagement - Active participation: German authorities participate actively in ESAs, ESRB, and numerous colleges of supervisors; they cooperate extensively with relevant non-EU jurisdictions. - Practical issue: some forums involve an unwieldy number of participants and are time consuming. - Suggested arrangement: consider a more tiered structure with a core group of supervisors (perhaps including the relevant ESA) engaged in ongoing coordinated supervision, and a larger group addressing broader, less urgent issues; this arrangement exists and works well for two large German institutions and could be proposed for others. - International regulatory implementation: - EU moving towards reducing national discretion, but allowance will be made to cope with cyclical factors. - Potential to reduce regulatory burden by further harmonizing reporting requirements and detailed implementation rules. - Concerns in the financial sector about implementation costs, timing differences between Germany and other states in Europe, and material differences between standards set in different countries. - Germany has the incentive and means to play a leading role in limiting adjustment costs and finding balance between local and international objectives. ### Macroprudential policy - Need to flesh out plans to strengthen macroprudential supervision. - 10-point plan envisages: - Expanding the Bundesbank’s capacity in macroprudential supervision. - Sharpening the macroprudential focus of the BMF-Bundesbank-BaFin Standing Committee. - Operational requirements: - Bundesbank as macroprudential supervisor must assess domestic, foreign, and regional risk factors and make recommendations to mitigate them that will affect microprudential supervision and touch areas outside its core competencies (e.g., fiscal policy, competition policy). - One task: identify SIFIs and define policy toward them, such as in the setting of the bank levy. - Bundesbank will not have decision-making power over most relevant instruments; consider introducing an “act or explain” requirement as used by the ESRB if public argumentation fails to elicit action by others. - Information sharing: - Frequent and open exchange of information between micro and macroprudential supervisors needed to act swiftly. - Within the Bundesbank, macroprudential analysts will need access to bank-specific data currently preserved by microprudential supervisors. ### Microprudential policy and supervisory capacity - Staffing and expertise: - Supervisory staff at BaFin and the Bundesbank are generally experienced. - Strong efforts to increase staffing levels and expertise have been made, but ongoing efforts needed to keep up with financial innovation. - Independence bolstered by civil service status; salaries relatively low; difficult to retain staff with highly technical skills, especially during financial sector booms. - Data collection and timeliness: - Authorities collect data and other information, but series must be kept under review and timeliness improved. - No systematic and regular compilation of data to estimate core Tier I capital, elements of the proposed liquidity coverage ratio, needs for U.S. dollar funding, or exposure to various sectors (including sovereigns) in other countries—urgent post-crisis issues. - Reliance on external auditors for on-site examinations contributes to lags in data availability; much of the year may pass before annual data is fully processed. - Reliance on external auditors may reduce supervisors’ familiarity with individual institutions, especially second-tier institutions. - Authorities have shortened reporting lags; more data are reported on a semi-annual or quarterly basis. - Recommendations: - Efforts to recruit more supervisors and conduct more on-site inspections are to be applauded. - Lags in publication of financial sector data should be shortened; availability of preliminary data on a timely basis would enhance transparency and market discipline. - Supervisors should adopt a more forward-looking approach: be prepared to impose conditions (including capital requirements) based on projections rather than immediate situation; enhance stress-testing capabilities and incorporate results into day-to-day supervision. - Develop a formalized “ladder” of supervisory actions commensurate with nature and seriousness of identified issues. - Grant supervisor full legal powers to vet major acquisitions in advance. ### Approach to SIFIs, levies, and consolidated supervision - Post-crisis strengthening: - Authorities’ approach to SIFIs has been strengthened; initiatives include strict measures to limit excessive compensation, introduction of a bank levy, and closer monitoring of the largest institutions. - Consider increasing loss absorbency of large German SIFIs (e.g., imposing SIFI surcharges). - Bank levy: - Levy should capture degree of SIFIs’ contribution to systemic risk and interconnectedness. - Proposed calibration may appear too low to effect behavioral change, correspond to contribution to systemic risk, or build up an adequate restructuring fund in the foreseeable future. - Important that authorities retain flexibility to periodically reassess calibration. - Analysis using the SCCA provides one basis for calibrating the levy. - Consolidated supervision: - Consolidated supervision of financial conglomerates and cross-border groups needs continued focus. - Further strengthening of supervisory practice and vigilance on cross-sector risks is warranted. ### Sectoral issues: banking, insurance, securities, CCPs, AML/CFT - Banking sector: - Challenge of adopting more forward-looking supervision in aftermath of crisis and prospective Basel III introduction. - Some banks expanded rapidly into less familiar financial markets in “search for yield”; authorities must induce preemptive measures and adaptation of business models, risk management, and capital planning. - Authorities have obtained legal powers to impose higher capital requirements on problem banks; operational procedures recently became available but not extensively tested. - Insurance sector: - New rules improve qualitative requirements on corporate governance, risk management, and internal control; scope of supervision extended to reinsurance. - New risk-based system to select supervision priorities and allocate supervisory resources implemented. - Solvency II will require enhancement of BaFin’s supervisory resources, especially for on-site supervision. - Need to strengthen group-wide supervision and supervisory cooperation for large cross-border insurance groups; vigilance over insurers’ and reinsurers’ investment activity; refine stress-testing techniques. - BaFin and local chambers of industry and commerce need to work closely to implement the new EU directive on insurance intermediaries. - Collective investment schemes and securities markets: - Legislative and institutional framework is sophisticated but gaps remain: - “Grey market” activity outside fully regulated market produces functionally similar products not subject to same standards (concern mainly for certain closed-end funds and retail-oriented products with embedded options). - Regulations to address this are in an advanced stage of preparation. - BaFin relies heavily on analysis of incoming reports and annual compliance reports prepared by external auditors; more on-site compliance inspections recommended. - Post-trade transparency requirements apply only at the level of individual markets and do not facilitate consolidation and dissemination of post-trade data; a “whole of market” transparency regime would be valuable. - Central counterparties: - German CCP (Eurex Clearing AG) is one of the world's leading derivatives exchanges, especially in fixed income-related products. - Governance and oversight are of high standard, but BaFin’s and the Bundesbank’s mandates to regulate, supervise, and oversee Eurex are based on its banking status, somewhat constraining development of a fully articulated regulatory regime for the CCP function. - AML/CFT: - Recent FATF assessment found Germany introduced important AML/CFT measures but further improvements needed. - Weaknesses identified in criminalization provisions, some requirements on financial institutions (record keeping, monitoring complex and unusual transactions, internal controls), and sanctions for noncompliance. - Since the assessment, authorities have taken steps to enhance the AML/CFT framework: several laws passed or in draft; BaFin circulars extend list of predicate offenses, clarify requirements, reinforce operational powers, and strengthen supervisory powers. ### Crisis management and exit strategy - Need for a detailed “exit strategy” from financial support measures in the near term. - Financial support during the crisis contributed to overall financial stability, including institutions that did not seek assistance. - With recovery underway, concrete action plans needed for remaining capital injections and winding-up institutions, taking into account applicable EU rules. - Strategic plans should aim to reduce future need for assistance by raising equity capital or adjusting banks’ balance sheets; some banks have raised capital since the FSAP Update mission. - New bank restructuring law (in force since January 2011): - Significantly strengthens crisis management framework; reflects lessons from the crisis. - Grants broad powers to authorities to facilitate more timely and efficient resolution of problem banks deemed systemically relevant. - Provides BaFin a powerful new instrument to transfer the banking business to another institution, a power to be exercised in agreement with the FMSA if resources are needed to facilitate the transfer. - Process for interagency coordination between BaFin and the FMSA should be set out more clearly. - Other new instruments: stronger remedial powers, reorganization procedures involving the courts, appointment of a special administrator to take over management of a bank. - A complementary tool for transfer of assets and liabilities suitable for all banks—even nonsystemic—entering (corporate) insolvency proceedings would facilitate efficient resolution. - Definition of systemic relevance under the law focuses primarily on aspects such as size and interconnectedness and is sufficiently flexible to recognize groups of smaller banks that jointly pose systemic risk. *Source: _cr11169 - 35. While BaFin has a mandate to regulate and supervise the national financial* ### 60. Given the complexity and sheer size of some German financial groups, the ### Given the complexity and sheer size of some German financial groups, the development of resolution plans seems worthwhile. ### Resolution planning and special regimes - An explicit legal requirement for the establishment of resolution plans for systemically relevant banks would seem useful. - While powers under the new restructuring law may be applied to financial groups that comprise banks, consideration could be given in future to establishing a special resolution regime for nonbank SIFIs. ### Restructuring fund, contingency funding, and interaction with DGSs and mutual guarantee schemes - The new restructuring fund is administered by the FMSA and is an important source of resources to facilitate bank resolution. - Initial resources are limitedly built up by means of the bank levy; contingency funding arrangements remain important, for example: - ability to impose special assessments; and - ability to draw on residual borrowing authority from the SoFFin fund. - Clarification is needed on interaction between the restructuring fund, the DGSs, and mutual guarantee schemes: - stakeholders (including the mutual protection schemes) should first share in any burden; - in systemic cases, the restructuring fund may be tapped. - The DGS should be able to contribute to financing bank resolution measures, provided the interests of all insured depositors (including those of nonproblem banks) are adequately protected. ### Depositor protection: uniformity, predictability, and credibility - The German deposit protection regime is highly fragmented, prefunding is very limited, and its features lack transparency. - Confidence among depositors was maintained during the crisis in part because of the authorities’ public commitment to fully protect household deposits. - Limitations became apparent in: - the commercial bank’s private DGS in connection with the failure of Lehman Brothers; and - the mutual protection schemes run by the savings banks association in the case of some Landesbanken. Key findings and recommendations: - Coverage level - The current coverage level of €100,000 under the statutory DGS appears broadly appropriate because it covers more than 90 percent of retail deposit accounts. - To make this coverage applicable for all depositors and to reduce competitive distortions, the mutual protection schemes run by the savings banks association and the cooperative banks should be modified to ensure that depositors have a legal claim for the reimbursement of €100,000 (including changes to the legal framework as needed). - Groups of banks may wish to maintain additional mutual protection, but markets will demand clarification on the scope of coverage and the scheme’s resilience. - Key information on the actual financial strength of the various schemes should be made public. - Scope and caps on coverage - The notional coverage levels of the commercial banks’ private scheme and the mutual protection schemes are very high by international comparison (unlimited under the mutual protection schemes), and coverage is also very broad (encompassing all liabilities of the institutions under the mutual protection schemes). - Such commitments to protect wholesale depositors and other claimants weaken market discipline. - In a crisis situation, the ability of the pillar schemes to meet these expectations will either require massive public support, or potentially destabilize the other member banks that need to make good the payouts. - Therefore, coverage (or at least, legally binding coverage) should be capped at a level that can be readily funded, so as to enhance the credibility of the regime. - To reduce procyclicality, any pillar scheme should build up adequate prefunding. ### Emergency liquidity and Eurosystem arrangements - Mechanisms are in place for the emergency provision of liquidity: - The Bundesbank has comprehensive procedures in place for emergency liquidity assistance (ELA) according to the relevant Eurosystem provisions. - The Bundesbank made limited use of its ELA framework during a short period of time in 2008–09. - During the crisis, the ECB introduced several changes to the monetary policy operational framework to enhance credit support in the euro area, including the modalities for liquidity provision. ### Cross-border crisis management for German global banks - The BMF, BaFin, and the Bundesbank have established a standing committee to coordinate and facilitate regular discussions on financial stability and crisis-management issues; this committee acts also as a “single point of contact” for foreign authorities in cross-border crises. - Crisis management groups were set up to discuss institution-specific cross-border crisis management issues. - German authorities are actively involved in international fora to deal with cross-border crisis management and are developing ex ante procedures and tools for handling major distress at a German global bank, including: - how to deal with burden-sharing arrangements; and - how to address conflict of laws when defining resolution plans. ### Appendix I — Implementation of the Recommendations of the 2003 Assessment (selected actions) - Guarantees eliminated from 2005. Some Landesbanken have become private law institutions. - Consolidation within pillars has continued. - Some Landesbanken publish quarterly reports. Public policy banks have been established in some states. - Annual indicators have been published since 2005. Most indicators on deposit takers are published on a quarterly basis. A system for collecting statistics on derivatives operations was established in 2010. - BaFin’s mandate to issue secondary regulations has been extended through various pieces of legislation. A law was proposed for consideration in late 2010 to formalize the delegation of regulatory powers to BaFin. - BaFin and the Bundesbank have substantially increased staffing devoted to on- and off-site supervision, systemic financial stability issues, and the assessment of structured assets. - Refined loan classification criteria were introduced in 2009. The credit reporting system now includes information on loan performance. - The Banking Act was amended in 2009 to strengthen oversight of holding companies. - Implementation of Solvency II is expected in 2013. - Publication deadlines for insurance annual accounts and aggregate statistics have been advanced one month. - Reporting of trades on regulated unofficial markets was mandated in 2009. ### Appendix II — Risk Assessment Matrix (selected threats, likelihood, and impacts) - Sharp “double dip” recession - Likelihood: Low - Impact considerations: Medium - Key considerations: Germany exposed to drop in demand for capital goods and consumer durables; partner economies (Central, Eastern and Southern Europe) might suffer severe contraction; restricted supply of financing could generate negative feedback loops; inversion of yield curve could raise short-term rates; double-dip in the U.S. might lead to euro appreciation harming European firms. - Financial sector impacts: German banks’ credit quality directly affected; market losses on exposures (e.g., commercial real estate in the U.S.); inversion of the yield curve would affect bank profitability, especially retail banks; nonbank financial institutions face market losses on securities holdings; life insurers and pension funds face very low long-term interest rates. - Mitigating note: exposures to “toxic assets” and mispricing have been reduced and some weak institutions have been “weeded out.” - Very slow growth in Europe and low interest rates - Likelihood: Medium - Impact considerations: High - Key considerations: structural rigidities, fiscal burdens, demographic pressure, uncertainty; prolonged weak investment and high unemployment; possible deflation; restricted financing supply. - Financial sector impacts: reduced profitability for German banks; potential negative feedback to loan supply; challenge meeting higher capital requirements; life insurers and pension funds face increased liabilities; flat or negative yield curve reduces retail bank profitability. - Sustained high sovereign risk - Likelihood: Medium - Impact considerations: Medium to High - Key considerations: rises in sovereign spreads may entrench and spill over; corporate spreads and sovereign-linked assets forced up; possible strain on subnational government solvency. - Financial sector impacts: German institutions hold substantial foreign sovereign, sovereign-linked, and subnational claims; substantial losses may need to be acknowledged even without a credit event. - Regulatory uncertainty and regulatory burden - Likelihood: High - Impact considerations: Low - Key considerations: uncertainty about final form and calibration of new regulations; possible flawed regulations requiring amendment; money-market banks and large financial groups most affected; some groups will need to increase core capital and decrease leverage. - Mitigating note: EU process and international coordination (FSB, Basel Committee, IMF) likely to moderate some measures and provide long phase-in periods. - Sustained dislocation in funding markets - Likelihood: Medium - Impact considerations: Medium - Key considerations: renewed illiquidity or high premia in funding markets could affect banks reliant on market funding (interbank borrowing, securitization, covered bonds); increased competition for retail deposits could squeeze profitability; U.S. dollar funding could be especially problematic; banks with funding surplus may suffer lower returns on placements in “safe havens.” ### Appendix III — Stress-testing framework (banks) - Two complementary approaches to stress testing banks’ solvency were adopted: - (a) a bank-by-bank balance sheet approach; and - (b) a market-based systemic approach. - The balance sheet approach: - Applied to almost all German banks using bank-by-bank data to compute impact of macroeconomic stress on income and capitalization. - Used NiGEM (National Institute of Economic and Social Research’s global macroeconomic model) to project relevant variables for Germany and other relevant economies, subject to a predefined GDP path consistent with scenarios used in concurrent European FSAP Updates. - Accounted for prospective Basel III regulatory changes, namely: - (a) a phased adjustment of minimum capital ratios; - (b) an increase in RWA foreseen at end-2011 (due to more conservative rules mainly for counterparty risk); and - (c) a gradual adjustment of eligible capital. - Behavioral changes of banks were modeled in terms of credit growth and pay-out of profits, allowing for deleveraging in case of stress, and partial retention of profit by well-capitalized banks. - Strains in sovereign (and bank) debt markets and the increase of funding costs under stress were taken into account. - Capital ratios were projected for 3 groups of banks: - (a) the large German banks deemed to be systemically important financial institutions, or SIFIs; - (b) savings banks; and - (c) cooperative banks. - The approach was used for both the core tests and some supplementary tests. - The approach is not appropriate to very heterogeneous smaller private banks; for them, a battery of shorter-horizon single-factor tests were carried out, and information on the distribution of outcomes obtained. *Source: _cr11169 - 60. Given the complexity and sheer size of some German financial groups, the* ### 68. An approach using a systemic solvency risk model (SCCA) was used to estimate ### An approach using a systemic solvency risk model (SCCA) was used to estimate ### Systemic solvency risk model (SCCA): purpose and outputs - Estimated joint, market-implied “residual risk” or “expected losses” of the banking sector, capturing interdependencies between banks that proved critical during the crisis. - Main output: answers the question of how large bank losses are expected to be in the worst cases (for example, the worst 5 percent). - Analysis focus: - Illustrate the evolution of this “residual risk” during the crisis. - Project residual risk over 2011–15 using the same macroscenarios and satellite models as used under the balance sheet approach. - Heterogeneity and methodology: - Sensitivity of market-implied residual risk estimated to capture heterogeneity across banks. - Used an advanced option pricing methodology to capture the influence of various macroeconomic and financial variables. - Based on daily data from credit markets during 2005–January 2011. ### Core liquidity tests: design and scope - Test type: Top-down “reverse” tests (proportion of “failed” banks estimated as stress is increased). - Objective: Assess potential vulnerabilities to short-term liquidity shocks. - Features: - Allow different outflows of retail and wholesale funding. - Account for illiquidity in securities markets. - Tests conducted with and without customer deposit outflows. - Implied cash flow test specification (from Table 3 context): - Cumulative outflow assumptions: about 60 percent of wholesale funding and 15 percent of customer deposits. - Time horizons used: 1 week, 1 month, 1 year (depending on test). ### Insurance sector stress-testing practices and recommendations - Current practices: - Microprudential stress tests for all German insurers regularly carried out under BaFin’s guidance. - Bundesbank analyzes the sector’s risk from a top-down perspective. - Ad hoc tests conducted (for example, on the effects of low interest rates). - Tests assess potential reduction of value of assets under stress, accounting for asset price risks and credit risk. - Liabilities: solvency requirements according to Solvency I used as a buffer against technical provisions. - Estimates account for growth of business, risk mitigations, hidden reserves, and specific insurer risk elements (for example, free provisions for bonuses and rebates). - Recommendations for enhancing stress tests: - Regularly revise and adapt stress tests to Solvency II. - Complement existing tests for larger insurers with more sophisticated tests. - Consider running multi-period tests on a regular basis because the insurance sector is often affected by slower-moving trends and feedback through profitability and retained earnings is likely to be strong. - Inform tests by market indicators to assess potential shocks to asset values. - Include higher risk-sensitivities in assessment of insurance and other risks on the liability side; actuarial estimates are reportedly conservative, but long run vulnerabilities may be more on the liability than the asset side. - Keep liquidity risks under review, especially for life insurers, to better monitor companies’ risk management in this area. - Improve analysis of group-wide stability and linkages to the banking sector, notably where insurance companies belong to financial conglomerates and networks. ### Germany: Overview of Stress-Testing Framework — key items (from Table 3) - Who performed the stress tests: - IMF FSAP team & authorities for some tests. - Institutions covered/market share: - Balance sheet (B/S) approach: Scenario analysis for about 1,700 banks (87 percent of system). - Systemic CCA approach: 13 largest banks (~40 percent of system). - Sensitivity analysis for remaining institutions (200 small private banks, 13 percent of system). - B/S type tests: All supervised German universal banks (~1,900/100 percent); results reported for four groups. - Supplementary tests for about 1,600 banks by FSAP team. - Severity of shocks: - Baseline: October 2010 WEO projections for key macro-financial variables (GDP growth and interest rates). - Scenario 1: Double Dip: 2 standard deviations (SD) GDP decline with respect to baseline (maximum 5.4 percentage point deviation), and spike in short-term interest rates. - Scenario 2: Slow Growth scenario (cumulative 4.0 percentage point deviation). - Scenario 3 (“supplementary” stress test): 2.6 SD with respect to baseline. - Sensitivity analysis: up to 50 percent increase in loss rates, default of three largest borrowers. - Implied Cash Flow Tests: Cumulative outflow of about 60 percent of wholesale funding and 15 percent of customer deposits. - Supplementary test: foreseen Basel III ratios. - Data used: - Projected end-2010 data, supplemented by recent data on capitalization. - Supervisory data, except for scenario 3 and supplementary liquidity analysis that used publicly available data, and CCA where market data was used. - Risk horizon: - Scenario tests: 5 years (2011-15). - Sensitivity analysis: immediate. - 1 week, 1 month, 1 year (depending on test). - Metrics (hurdle rates): - Tier 1 and CAR capitalization (Basel III ratios depending on the year). - Hurdle rate for scenario 3 also included Core Tier 1 Ratios (Basel III) and a voluntary capital buffer in anticipation of the graduated introduction of capital cushion for procyclicality, equal to 2.0 percentage points added to core Tier 1/Tier 1. - Implied Cash Flow Tests: Survival period. - Basel III liquidity ratios. - Positions and risk factors included: - All on- and off-balance sheet positions, except for sensitivity tests for 200 small private banks. Scenario 3 had a specific focus on the banking book (sovereign debt and bank debt holdings). - Risks comprised credit risk, including counterparty credit risk; market risk; operational risk; and explicit simulation of contagion/spillovers risks (captured by the systemic CCA). - Income forecasted under stress (net interest income, trading income, commission and fee income, operating expenses; funding costs). - Bank run type stress scenario, wholesale funding markets and/or deposits affected, fire sales of assets (haircuts). - Basel III ratios: withdrawal of funding & fire sales of assets, accounting for maturity profile of bank. - Methodology: - B/S approach and Systemic CCA. - Simulation of macrofinancial linkages via satellite models (net interest income, net commission and fee income, trading income, operating expenses, credit losses). - Explicit simulation of Basel III (hurdle rates, capital definition, RWAs). - Simulation of bank behavior (credit growth, payout ratio; asset growth). - Reverse implied cash flow test. - Basel III liquidity ratios. *Source: IMF FSAP chapter content provided in the PDF excerpt.* ### 81.6 million ### _cr11169 - 81.6 million ### Demand and supply - Population headline: 81.6 million - GDP per capita (2010): US$ 40,631 - Annual percentage change (2005–2012) — selected series (period average in percent): - Private consumption: 0.3, 1.4, -0.2, 0.7, -0.2, 0.5, 1.3, 1.2 - Public consumption: 0.4, 1.0, 1.6, 2.3, 2.9, 1.9, 1.4, 0.6 - Gross fixed investment: 0.9, 8.0, 4.7, 2.5, -10.1, 6.0, 8.2, 3.4 - Construction: -3.0, 4.9, -0.5, 1.2, -1.5, 2.9, 6.7, 3.5 - Machinery and equipment: 5.4, 11.7, 10.7, 3.5, -22.6, 10.9, 11.0, 3.5 - Final domestic demand: 0.4, 2.6, 1.2, 1.4, -1.7, 1.9, 2.7, 1.5 - Inventory accumulation (growth contribution): -0.4, -0.2, -0.1, -0.2, 0.1, 0.5, -0.9, -0.1 - Total domestic demand: 0.0, 2.4, 1.3, 1.2, -1.9, 2.4, 2.1, 1.5 - Foreign balance (growth contribution): 0.7, 1.1, 1.6, -0.1, -3.2, 1.3, 1.2, 0.6 - GDP: 0.9, 3.6, 2.8, 0.7, -4.7, 3.5, 3.2, 2.0 - Output gap (In percent of potential GDP): -1.3, 0.9, 2.4, 2.0, -3.8, -1.6, 0.0, 0.2 ### Unemployment, prices and incomes - GDP deflator (period average): 0.5, 0.2, 1.7, 1.3, 1.3, 0.7, 0.2, 1.1 - Consumer price index (harmonized): 1.9, 1.8, 2.3, 2.8, 0.2, 1.2, 2.5, 1.6 - Unit labor cost (industry): -2.9, -3.9, -1.8, 7.6, 15.7, -8.1, 0.9, 2.2 - Personal saving ratio (in percent): 10.5, 10.6, 10.8, 11.7, 11.1, 11.4, 11.0, 10.9 - Unemployment rate (in percent) (Eurostat definition): 11.2, 10.2, 8.8, 7.6, 7.7, 7.1, 6.3, 6.2 ### General government (in percent of GDP) - Expenditure: 46.8, 45.3, 43.6, 43.8, 47.5, 46.6, 45.8, 45.1 - Revenue: 43.4, 43.7, 43.8, 43.9, 44.5, 43.3, 43.9, 44.0 - Overall Balance: -3.4, -1.6, 0.3, 0.1, -3.0, -3.3, -1.9, -1.1 - Structural Balance: -2.7, -2.2, -0.9, -0.5, -1.0, -2.3, -1.8, -1.3 ### Money, credit and interest rates - Money and quasi-money (M3) — Germany's contribution to euro area, period change (percent): 5.2, 4.9, 10.7, 9.7, -1.5, 4.4, 3.8, ... - Note: Data for 2011 refer to the change in February. - Credit to private sector (percent change): 2.1, 3.4, 3.3, 6.6, -0.5, -1.9, -0.8, ... - Three-month interbank rate (percent; data for 2011 refer to February): 2.1, 3.1, 4.3, 4.6, 1.2, 0.8, 1.1, ... - Yield on ten-year government bonds (percent; data for 2011 refer to February): 3.6, 3.8, 4.3, 4.1, 3.3, 2.8, 3.1, ... ### Exchange rates and effective rates - Euro per US$ (annual average; data for 2011 refer to March): 0.80, 0.80, 0.73, 0.73, 0.68, 0.76, 0.73, ... - Nominal effective rate (1990=100; data for 2011 refer to March): 114.7, 114.9, 119.7, 120.7, 122.2, 114.8, 117.0, ... - Real effective rate (1990=100; based on relative normalized unit labor cost in manufacturing; data for 2011 refer to February): 103.2, 100.2, 101.5, 100.5, 106.3, 99.3, 100.4, ... ### Structure of the financial system (Table 4.2) — selected aggregates and counts (2003–2010) - Total financial system assets (selected values): 8,201; 10,033; 9,749; ... - Depository institutions (institutions, branches, employees, assets in billions of euro, percent of total) — selected snapshots: - 2003: 2,199 institutions, 36,575 branches, 725,550 employees, 6,299 (76.8 percent) - 2008: 1,981 institutions, 39,531 branches, 685,550 employees, 7,956 (79.3 percent) - 2009: 1,939 institutions, 39,411 branches, 673,500 employees, 7,510 (77.0 percent) - 2010: 1,919 institutions, 8,455 branches, ... (note: table contains more detailed breakdowns by bank type) - Mutual funds (number / assets share): values listed include 6,532 (2003) ... 5,969 with 10.5 percent (2010) - Insurance companies (total assets; percent of financial system): indicators and sectoral breakdowns provided; sources BaFin, Bundesbank. - Notation: 2010 data are preliminary; 2009 accounting change via Act Modernising Accounting Law (BilMoG) affected reporting. ### Foreign claims of German banks (Table 4.3) — selected shares of total bank assets (end-2009, end-2010) - All countries: 30.5 (end-2009) → 26.9 (end-2010) - of which: banks: 9.7 → 8.8; enterprises: 18.0 → 15.5; general government: 2.9 → 2.5 - Euro-area member states: 12.7 → 10.7 - France: 1.8 → 1.7 - Ireland: 1.7 → 1.1 - Italy: 1.8 → 1.5 - Spain: 2.2 → 1.6 - Other EU countries: 6.5 → 5.9 - United Kingdom: 4.6 → 4.2 - Rest of world: 11.3 → 10.3 - United States: 4.9 → 4.4 ### Core Financial Soundness Indicators for banks (Table 4.4) — selected indicators (percent) - Regulatory capital to risk-weighted assets (total): 12.2, 12.5, 12.9, 13.6, 14.8, 14.7, 16.1 - Commercial banks: 11.6, 12.5, 13.3, 13.5, 14.9, 14.1, 15.4 - Landesbanken: 12.1, 11.7, 11.6, 12.7, 14.9, 15.0, 17.1 - Regulatory Tier I capital to risk-weighted assets: 8.0, 8.2, 8.5, 9.5, 10.8, 10.8, 11.8 - Sectoral distribution of loans to total loans (selected): - Loan to households (total): 28.5, 27.6, 25.6, 24.4, 26.3, ... 26.2 (Q2 2010) - Loans to non-financial corporations: 14.5, 14.3, 14.0, 14.5, 14.8, ... 14.6 (Q2 2010) - Nonperforming loans (NPLs) to gross loans: 4.0, 3.4, 2.6, 2.9, 3.2, ... ... - NPLs net of provisions to capital: 34.6, 28.6, 21.6, 25.3, 42.4, ... ... - Return on average assets (after-tax): 0.3, 0.3, 0.2, -0.3, -0.1, ... ... - Return on average equity (after-tax): 9.2, 7.5, 4.7, -8.1, -2.0, ... ... - Liquid assets to total short-term liabilities: 122.0, 120.9, 119.4, 120.3, 144.1, 138.6, 137.0 - Net open positions in FX to capital: 6.9, 6.7, 6.9, 6.6, 5.3, 6.0, 4.4 ### Encouraged Financial Soundness Indicators for banks (Table 4.5) — selected metrics (percent) - Capital to assets (deposit-taking institutions): 4.1, 4.3, 4.3, 4.5, 4.8, 4.4, 4.3 (2010 preliminary) - Geographical distribution of loans to total loans: Germany 75.2, 72.6, 71.1, 71.2, 72.9, 72.7, ... - FX loans to total loans: 10.2, 10.5, 11.5, 12.2, 11.5, 12.1, ... - Customer deposits to total (non-interbank) loans: 71.8, 75.2, 76.2, 77.7, 76.5, 74.6, 73.6 - Savings banks: 102.2, 103.3, 105.4, 108.3, 109.9, ... 106.9 - Credit cooperatives: 113.6, 113.1, 114.7, 119.6, 122.7, ... 119.0 - Deposits/total assets: 65.8, 66.0, 66.9, 67.3, 67.3, ... 60.8 (2010 preliminary) - Spread between highest and lowest interbank rates (basis points): 2.0, 2.6, 4.6, 10.5, 15.0, ... ### Insurance sector indicators (Table 4.6) — selected aggregates (euro billions, unless noted) - Life insurance — selected items (2003–Q2 2010): - Gross premiums: 67.8, 68.8, 72.8, 75.2, 75.6, 76.5, 82.4, 43.2 (Q2 2010) - Investment income: 32.3, 31.2, 37.9, 35.1, 33.1, 9.0, 37.1, ... - Total assets: 688.1, 716.3, 734.2, 758.7, 778.2, 773.0, 804.2, ... - Investments: 609.3, 619.3, 648.7, 666.9, 694.4, 686.5, 705.1, 725.5 - Government securities (of investments): 68.2, 85.3, 97.5, 101.2, 103.8, 106.5, 127.0, 138.9 - Private health insurance — selected items: - Gross premiums: 24.8, 26.5, 27.4, 28.6, 29.5, 30.4, 31.5, 16.7 (Q2 2010) - Total assets: 102.3, 112.7, 124.0, 135.6, 147.8, 157.9, 169.7, ... - Investments: 97.9, 108.1, 119.4, 130.5, 142.3, 151.9, 163.6, 170.3 - Government securities (of investments): 9.9, 12.7, 15.4, 16.2, 17.9, 22.3, 30.0, 32.6 - Non-life (without private health insurance) — selected items: - Gross premiums: 61.2, 61.8, 62.0, 62.4, 62.1, 61.6, 63.7, 38.0 (Q2 2010) - Total assets: 153.4, 158.9, 164.3, 174.5, 182.3, 177.1, 176.7, ... - Investments: 108.4, 116.7, 123.7, 132.3, 139.4, 136.0, 136.9, 141.9 - Reinsurance — selected items: - Gross premiums: 51.4, 47.2, 45.4, 44.9, 40.1, 38.3, 39.3, 22.2 (Q2 2010) - Total assets: 263.8, 254.6, 277.8, 278.0, 271.1, 265.6, 251.9, ... - Investments (selected): ... 206.2, 218.9, 206.1, 215.6, 204.0, 202.4, 207.5 - Notes: ROE figures and detailed line items provided by supervisory reporting; investments partly estimated where invested via investment funds. ### Pension sector indicators (Table 4.7) — selected items (euro billions, counts) - Pensionkassen (number): 155, 158, 156, 152, 152, 153, 153, 152 - Pensionsfonds (number): 23, 24, 24, 24, 25, 27, 29, 29, 30 (sequence) - Number of policy holders (millions), Pensionkassen: 5.3, 16.3, 16.6, 16.9, 17.2, 17.3, 18.7, 18.5, ... - Financial indicators (Pensionkassen): - Gross contributions: 3.2, 4.2, 5.8, 12.9, 11.7, 7.8, 8.8, 0.5 (Q2 2010) - Investment income: 3.6, 3.9, 4.4, 4.5, 4.4, 1.9, 5.9, ... - Total assets: 78.5, 83.7, 91.4, 99.0, 117.7, 123.5, 133.1, ... - Investments (of total assets): 74.5, 78.5, 85.9, 92.3, 98.5, 103.5, 107.0, 110.2 - Government securities (of investments): 10.9, 10.9, 12.2, 12.8, 13.2, 16.2, 18.4, 19.5 - Notes: Data from BaFin; some series based in part on estimations due to investments via investment funds. ### Securities market indicators (Table 4.8) — selected items - Collective investment schemes (Open end) — number of funds (Germany): 6,020; 5,884; 6,016; 6,050; 5,969; 5,966; 5,997 - Assets under management (Germany, euro billions): 977, 1,027, 1,047, 910, 1,027, 1,071, 1,137 - Assets breakdown (euro billions; selected): equity 332, 376, 377, 216, 301, 313, 372 - Average bid-ask spread in corporate securities (market liquidity): 0.0600, 0.1000, 0.1000, 0.3000, 0.2700, 0.0800, 0.070 - Projected issuing volume (euro millions) — selected years: ... 20,737; 14,693; 15,829; 9,018; 4,264; 10,058 - Notes: 2010 data are preliminary. ### Household and real estate sector indicators (Table 4.9) - Disposable income (end of period, euro billions): 1,414; 1,436; 1,464; 1,495; 1,521; 1,570; 1,554; ... - Household disposable income (percentage change in real terms): (series label present; detailed percent changes not printed) - Debt (end of period, euro billions): 1,569; 1,574; 1,568; 1,567; 1,545; 1,531; 1,531; ... - Interest expenditures (euro billions): 63; 60; 58; 61; 66; 67; 51; ... - Savings ratio (percent): 10.3, 10.4, 10.5, 10.6, 10.8, 11.7, 11.1, 11.4 - Structure of household financial assets (end of period, euro billions): - Deposits in banks and currency: 1,399; 1,448; 1,492; 1,535; 1,621; 1,738; 1,788; ... - Bonds: 285; 323; 320; 377; 350; 338; 362; ... - Equities (including mutual funds): 895; 912; 1,037; 1,071; 1,114; 850; 914; ... - of which mutual funds: 465; 462; 515; 519; 549; 504; 555; ... - of which quoted shares: 153; 164; 190; 225; 204; 128; 153; ... - Loans / ratios: - Ratio of households' financial liabilities to financial assets (percent): 41.2, 39.7, 37.4, 35.6, 33.8, 34.4, 32.8, ... - Market-based indicators: - Avg. number of bankruptcies per month: 2,081; 4,094; 5,742; 8,049; 8,770; 8,178; 8,041; ... - Unemployment rate (percent): 10.4, 10.8, 11.1, 9.6, 8.1, 7.4, 7.8, 7.2 - Labor force participation rate (percent): 51.6, 52.1, 52.5, 52.5, 52.6, 52.8, 53.0, 53.0 - Real estate markets: - Real estate prices, new dwellings and resale (2005=100, yearly average): 100, 100, 101, 101, 102, 104, ... - Residential real estate loans to total loans (percent): 17.8, 17.8, 17.7, 16.5, 15.7, 16.9, 16.2 - Commercial real estate loans to total loans (percent): 6.4, 6.1, 5.8, 5.4, 5.2, 5.8, 5.5 ### Corporate sector indicators (Table 4.10) - Corporate equity (euro billions, end of period): 1,741.3; 1,972.2; 2,234.6; 1,648.7; 1,774.7; ... - Total corporate debt (euro billions): 1,710.6; 1,781.3; 1,900.7; 2,006.7; 1,962.6; ... - Financial assets (euro billions): 2,282.4; 2,495.6; 2,696.6; 2,381.5; 2,575.2; ... - Financial assets/financial liabilities (ratio): 1.33, 1.40, 1.42, 1.19, 1.31, ... - Return on equity, all nonfinancial corporates: 0.34, 0.33, 0.32, 0.43, 0.34, ... - Market indicators: - Avg. number of bankruptcies per month: 3,070; 2,845; 2,430; 2,441; 2,724; ... - DAX excluding FIs (composite index, e.o.p.): 596.5, 748.3, 974.2, 508.3, 817.6, 850.7 ### Central counterparty (Table 4.11) — item headline - Number of contracts and transactions cleared (millions): table begins series for 2006–2010 (data continuation in source). *Source: German authorities; IMF staff estimates and projections; BaFin; Bundesbank.* ### 1.1 Equities73.5110.0129.294.296.5 ### _cr11169 - 1.1 Equities73.5110.0129.294.296.5 ### Overview - Table presents UCC metrics across multiple instruments and clearing activity categories. - Currency for derivatives is specified as (Euro billions). ### 1.1 Equities - 73.5 - 110.0 - 129.2 - 94.2 - 96.5 ### 1.2 Debt instruments - 0.009 - 0.089 - 0.115 - 0.085 - 0.097 ### 1.3 Derivatives (Euro billions) - 1,526.8 - 1,899.8 - 2,165.0 - 1,687.2 - 1,896.9 ### 2. Value of contracts and transaction cleared - 108,039.4 - 127,156.4 - 116,757.3 - 80,525.9 - 99,838.9 ### 3. Average daily value of transactions - 423.75 - 504.64 - 459.73 - 317.03 - 390.0 ### 4. Peak value of transactions - 945.2 - 1,287.1 - 1,110.3 - 802.3 - 841.1 ### 5. Total number of clearing members - 119 - 118 - 109 - 117 - 128 ### 5.1 Foreign clearing members - 66 - 66 - 60 - 65 - 75 ### 6. Clearing fund (EUR millions) - 752 - 895 - 1,392 - 1,259 - 912 *Source: Eurex.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11169.pdf_