On several occasions, doubts were even cast over the long-term survival of European monetary union. Spain and Italy – two major economies – have increasingly been drawn into the crisis. Crisis management measures have now led to a substantial transfer of risk from the private to the public sector. At the same time, they have caused the low-interest rate environment to become entrenched and encouraged investors to search for yield and take on greater risks. Savers are increasingly channelling their funds into forms of investment which they view as a hedge against monetary and exchange rate instability. This is contributing to the rise in real estate prices in Germany’s urban centres. Robust household debt sustainability, moderate lending growth and cautious lending standards in Germany are currently preventing a rapid build-up of risks to financial stability.
Yet the experiences of other countries show that precisely such an environment of low interest rates and high liquidity can encourage exaggerations on the real estate markets which pose a considerable threat to financial stability.
Five years on from the outbreak of the global financial crisis, the German financial system has grown more robust. Banks have more – and better-quality – tier 1 capital. However, cyclical and structural developments could hamper their profitability in the future. Overall, good progress is being made in implementing the comprehensive plans to reform financial market regulation. The need now is to assess how successfully the flaws in the financial system have been eliminated and identify any potential problems concerning the coherence of the new framework. In Germany, the Financial Stability Act (Finanzstabilitätsgesetz) establishes a legal framework for macro-prudential oversight.
Full Overview
Presentation of the review by Dr Andreas Dombret
In her opening statement at the press conference, Sabine Lautenschläger, Deputy President of the Deutsche Bundesbank and President's Alternate in the Governing Council of the ECB, gave her opinion on banking supervision:
"Setting up an effective, strong European banking supervision structure is a highly complex task. This is demonstrated, not least, by the many questions that remain to be answered. For instance, clarification is needed on how monetary policy and banking supervision can best be separated organisationally under the umbrella of the ECB, what form the governance structures within the ECB should take, how at least 17 national supervisors are supposed to cooperate with the ECB within a single supervisory system, and finally who is to take what decisions on what legal basis and with what legal protection. And then, this system will have to develop a comprehensive supervisory approach to be able to generate the advantages of a European system of supervision. Seen in that light, the timetable announced at the EU’s October summit, though it has been somewhat relaxed, still strikes me as being very ambitious.
Effective banking supervision is essential to stable monetary union. Thus, in my opinion it is a central, forward-looking project, and not so much a means of solving today’s problems. And because of its importance for the future of monetary union, we must be careful in how we proceed. Certainly, Europe will gain nothing from hasty implementation that produces a label without content."
Opening statement
© Deutsche Bundesbank
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