SIFIs in the Cross Sea: How Are Large German Banks Adjusting to a Rough Economic Environment and a New Regulatory Setting?

Abstract

In the aftermath of the financial crisis, policymakers at both global and national levels have begun to implement a range of regulatory measures designed to address systemic risk more consistently. One of the key elements of this has been a framework to contain the moral hazard and the negative externalities related to systemically important financial institutions (SIFIs). Regulators are seeking to make these institutions more resilient and to avoid future defaults. Another line of defense in this context is a more efficient restructuring and resolution regime. Against this backdrop, there has been increased interest on the part of policymakers in quantitative indicators measuring systemic importance. Based on indicator categories proposed by the Basel Committee on Banking Supervision (BCBS) we illustrate how, in principle, a set of indicators like this can be used to monitor the development of banks’ systemic importance over time. Overall, the set of indicators suggests that the systemic importance of large German banks has declined somewhat over the last 4 years. This finding appears to be driven mostly, however, by factors other than new policies directly addressing the too-important-to-fail-problem, chiefly the difficult economic environment. Therefore, it is still too early for a final judgment on the effectiveness of such policies. Given that credit rating-based measures of systemic government support suggest that large German banks are still benefitting from a substantial public subsidy, it may be necessary to consider additional policy measures over the medium term.

The views expressed in the paper are those of the authors and do not necessarily reflect the views of the Deutsche Bundesbank or its staff. Thilo Liebig is Head of the Macroprudential Analysis Division in the Financial Stability Department of the Deutsche Bundesbank and Sebastian Wider is a senior economist in the same division.