(Bloomberg) —
Germany is telling its banks to rebuild capital buffers that they were allowed to deplete at the onset of the pandemic, joining other European countries in tightening regulations again as lenders take more risk.
The country’s banks have to build 22 billion euros ($25 billion) of capital buffers by February next year, the country’s financial authorities said on Wednesday. The vast majority have enough capital on hand to meet the regulatory demands without raising fresh funds, BaFin President Mark Branson told reporters.
“It’s time to switch to prevention mode,” Branson told reporters on a conference call. “There are decisive signals that it is time to make the financial system more resistant.”
Germany is joining countries including France and Ireland in reactivating a requirement that banks hold extra capital to help them cope with a downturn in the economy. The region weathered the worst of the pandemic’s fallout thanks for massive support from taxpayers for companies and consumers and unprecedented regulatory relief for banks.
While lenders have lobbied to make some of those measures permanent, regulators around Europe have begun to tighten the reins. Speaking on the same call, Bundesbank Vice President Claudia Buch cited risk premiums on debt that are lower than before the pandemic as one area of concern. The boom in mortgage lending is another area, she said.
The 22 billion euros in capital breaks down as 17 billion euros for the countercylical buffer and a further 5 billion euros for German residential mortgages, according to Branson.
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