The Federal Cabinet approved on Wednesday the draft law for better crisis preparedness in the German banking sector. The so-called risk reduction act, according to the Federal Ministry of Finance, the relevant EU-guidelines into national law. It specifies, among other things, that banks must hold eight percent of its balance sheet as a loss buffer for emergencies.
as a result, banks should process the surprising losses and state bailouts at the taxpayers ‘ expense should be avoided. The design therefore prescribes binding limits on the levels of indebtedness. The debt ratio, describes the ratio of core capital to liabilities, must be at least three percent. The lower the ratio is, the higher a Bank, as measured by the core is in debt capital.
For international systemically important institutions, a higher minimum rate of three and a half to four percent, according to data from the Ministry of Finance. Last year, at the European level, has decided to increase the capital and liquidity requirements is a lesson in particular, from the global financial crisis of the years 2008 and 2009. At that time, banks operated business with borrowed money, came last, by the sudden turbulence and the associated losses in the wrong location.
