Mr Röseler, is the German banking sector still stable? In this year’s stress test, more institutions showed indications of potential shortcomings than in 2022.

That's right. In total, around twice as many smaller and medium-sized institutions (Less Significant Institutions – LSIs) fell short of the capital requirements compared with the exercise in 2022. These institutions would face difficulties in the event of a sharp economic downturn. We will of course be keeping a very close eye on these banks.

What does that mean in concrete terms?

We will take supervisory measures at an early stage if we deem it necessary. But it is important to note that we are talking about well below a hundred institutions here. A total of 1200 institutions were included in the stress test. The vast majority of banks and Sparkassen are therefore well capitalised and would be able to withstand a severe economic downturn. That is good news. The stress test also showed that many LSIs have learned from recent years – for example with regard to interest rate risk.

In the “crisis of the century” adverse scenario simulated by the LSI stress test, the LSIs would lose 3.7% of their Tier 1 capital ratio. That is a considerable impact.

But we must not forget that the shock simulated this year was much more severe. We are talking about a total inflation rate of more than 13%, cumulated over the three years of stress. And a sharp drop on the markets. For most institutions, this caused problems especially in the first of the three years of the simulated stress scenario. We will now look at these effects in detail.

The interest rate trend applied in the stress test did not reflect the actual trend.

In 2024, we saw some reductions in interest rates. The stress test, however, assumed that interest rates will rise. But we also calculated what the stress effect would have been if we had used the actual interest rate trend in 2024. In this case, the depletion of capital – and the resulting stress effect – would have been around one percentage point lower. But stress tests are not intended to predict real developments; instead they show how resilient banks would be in a highly challenging environment.

What do you expect from German LSIs now?

It is important that banks and Sparkassen continue to strengthen their capital resources and that they do not relinquish their strong position unless truly necessary. After all, the economic situation remains uncertain.