Germany: Financial Sector Assessment Program-Technical Note-Stress Testing, Interconnectedness, and Risk Analysis
IMF Staff Country Reports, August 16, 2022
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Bibliographic details
- Published: August 16, 2022
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400218019.002
Executive summary and key findings
- The financial sector weathered COVID relatively well on the back of high pre-crisis capital and liquidity buffers, strong public and private sector balance sheets, and unprecedented public and ECB support.
- Immediate risks to Germany’s financial stability from Russia’s invasion of Ukraine appear to be manageable due to the banks’ limited direct exposures to Russia.
- Risks associated with the economic fallout could impact some individual financial institutions, non-performing loans, and house prices.
- Real GDP growth was projected to regain momentum from mid-2022 onwards, but the war could hinder the recovery through:
- supply constraints,
- higher-than-expected above-target inflation (with higher energy prices and supply constraints),
- a tightening of financial conditions,
- shifts in investors’ confidence.
Risks, channels, and vulnerabilities
- Direct exposure channel: Banks’ limited direct exposures to Russia mitigate immediate systemic risk.
- Indirect macro-financial channels that could transmit and amplify the shock:
- deterioration in asset quality (non-performing loans),
- house price corrections affecting collateral values,
- higher inflation driven by energy price increases and supply constraints,
- tightening of financial conditions that could stress funding and liquidity positions at individual institutions,
- investor confidence shifts that can affect market funding and valuations.
Stress testing, interconnectedness, and risk analysis (implications)
- The assessment emphasizes the role of pre-crisis capital and liquidity buffers and policy support (public and ECB) in absorbing shocks.
- Stress-testing and interconnectedness analysis should focus on:
- idiosyncratic impacts on individual institutions despite manageable immediate systemic exposures,
- scenarios with prolonged supply constraints and sustained above-target inflation,
- the interaction between macroeconomic shocks and financial sector vulnerabilities (asset quality, house prices, funding conditions).
Subjects and keywords (as listed)
- Subject: Asset and liability management, Commercial banks, Cooperative banks, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, International organization, Liquidity, Liquidity requirements, Monetary policy, Stress testing
- Keywords: building and loan association, cash flow, Commercial banks, Cooperative banks, ECB support, FSAP solvency, Global, hurdle rate, Liquidity, Liquidity requirements, Stress testing, swap line
Source: Germany: Financial Sector Assessment Program-Technical Note-Stress Testing, Interconnectedness, and Risk Analysis (IMF Staff Country Reports 2022, 272).
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