DBRS Releases Commentary on Germany: Activation of Countercyclical Capital Buffer Indicates Rising Financial Risks, but Adds Macroprudential Flexibility

DBRS published a new commentary analysing the recently-announced activation of the Countercyclical Capital Buffer in Germany.

• DBRS views Germany’s activation of its CCyB favourably, as it is intended to make the German financial system more resilient and enhances macroprudential flexibility. The CCyB will be raised to 0.25% of risk weighted assets from 1st July 2019.
• The decision reflects concerns about rising risks in credit, loan collateral and interest rate increases as lending growth picks up.
• German banks have buffers above capital requirements, helping them meet the CCyB by Q3 2020.
• Germany joins 12 European countries that have already activated CCyBs in recent years.

“We view favourably the increase in the countercyclical capital buffer in Germany, because it enhances the macroprudential flexibility in Germany, and it is intended to make the German financial system more resilient to cyclical systemic risks”, said Adriana Alvarado, from DBRS Sovereign team.

“We expect the impact of the countercyclical capital buffer on banks should be limited. This is because the initial rate of the buffer is small and most banks in Germany already have a buffer above the regulatory capital requirements”, said Sonja Forster, from DBRS Financial Institutions team.

The commentary “Germany: Activation of Countercyclical Capital Buffer Indicates Rising Financial Risks, but Adds Macroprudential Flexibility” is available at www.dbrs.com.

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