Majority of Volksbanken impacted: Potential elimination of risk-based capital requirements by BaFin?
Small banks in Germany with a balance sheet total of up to ten billion euros could see a relaxation of certain quantitative requirements, according to a joint proposal by BaFin and the Bundesbank. This potential shift in regulation is based on an analysis by Barkow Consulting, which estimated that 91.9% of German banks, representing nearly a third of the total balance sheet of all German banks, fall below this threshold.
The proposal suggests the abolition of the risk-weighted core capital ratio for these small banks and the introduction of the Leverage Ratio as a regulatory change. Under the Leverage Ratio, the capital adequacy for loans to the government would be the same as for loans to companies at risk of default. This assumption is based on the idea that smaller banks could be wound down without causing significant problems and not posing systemic risks.
Interestingly, Barkow Consulting's analysis did not consider exceptions such as proprietary trading, derivatives, or crypto investments. Among all German banks, Volksbanks had the highest percentage of institutions with a balance sheet total of less than ten billion euros, both in terms of number (97.3%) and balance sheet total (75.1%).
The proposal also includes an increased leverage ratio for these small banks. However, it's important to note that the consultancy that conducted the analysis on how many German banks in 2024 could fall below a balance sheet total of ten billion euros is not named in the provided search results.
This joint proposal, if implemented, could have significant implications for the European banking landscape, particularly for small banks in Germany. The exact details and timeline for the implementation of these changes are yet to be determined.
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