The Federal Financial Supervisory Authority and the Deutsche Bundesbank found that Germany’s less significant institutions remain well capitalized in aggregate despite economic weakness, geopolitical risks and pressures in corporate and commercial real estate lending. Under a severe scenario involving an escalation of geopolitical tensions and a sharp global downturn, their aggregate Common Equity Tier 1 ratio would fall by 3.8 percentage points to 14.6%, mainly because of credit and market risk impairments. Several dozen banks and savings banks would fail to meet supervisory capital requirements under the scenario, although fewer would do so than in the 2024 stress test. BaFin attributed the improvement partly to closer supervision and subsequent capital increases at institutions identified as vulnerable in 2024. The accompanying survey covered 1,113 institutions, representing about 90% of German credit institutions and 38% of their aggregate balance sheet total. Institutions project aggregate return on total capital to rise from 0.43% in 2025 to 0.64% in 2028 and the Common Equity Tier 1 ratio to increase from 18.4% to 19.1%, although one in five expects its ratio to decline. BaFin will in future issue Pillar 2 Guidance only to institutions whose stressed capital ratios fall below total Supervisory Review and Evaluation Process capital requirements plus a 500 basis point buffer. The risk based early warning threshold is expected to reduce the number of institutions receiving additional capital guidance by about 40%. BaFin and the Bundesbank will subject particularly vulnerable institutions to more intensive supervision and scrutinize whether business and capital plans preserve sufficient capital against unforeseen shocks.
2026-09-24BaFin
Germany’s Federal Financial Supervisory Authority finds smaller banks resilient under severe stress, expects 40% fewer Pillar 2 Guidance recommendations
BaFin and the Deutsche Bundesbank found Germany’s smaller banks resilient in aggregate, with their Common Equity Tier 1 ratio falling 3.8 percentage points to 14.6% under severe stress. Several dozen institutions would breach capital requirements, but fewer than in 2024. A revised threshold for Pillar 2 Guidance is expected to reduce the number receiving additional capital recommendations by about 40%.