The purpose of the Committee is the macroprudential supervision of the German financial system. The financial crisis has highlighted the fact that focusing on the stability of individual institutions and insurance companies is insufficient. It is also crucial that the financial system is monitored as a whole to ensure its reliability and efficiency. The Committee is intended to add a macroprudential element to the microprudential supervisory system, with the two elements complementing one other. The European Systemic Risk Board (ESRB) was set up for this purpose at EU level on 1 January 2011.

BaFin Executive Board represented on the Committee

The Financial Stability Committee consists of three representatives from the Federal Ministry of Finance (BMF), three from the Bundesbank, three from BaFin and one representative (with no voting rights) from the Financial Market Stabilisation Agency (Bundesanstalt für Finanzmarktstabilisierung – FMSA). The Committee will meet once a quarter and has the option of convening additional sessions if necessary. BaFin will be represented at the meetings by President Dr Elke König and the Chief Executive Directors of Banking Supervision and Insurance Supervision, Raimund Röseler and Felix Hufeld. The Federal Ministry of Finance will be responsible for chairing the meetings.

The Committee represents the institutions that play a key role in supervising and regulating the German financial system. The Committee ensures structured dialogue between these institutions. Important information and findings on financial stability will be collated in the Committee as a central body and can be applied not only by the Committee itself, but also in the work of the individual institutions. The first meeting, for example, addressed the sustained low interest rate. “BaFin will benefit considerably from the information it obtains from the Financial Stability Committee as regards its supervision of individual banks and insurance companies,” said BaFin President Dr Elke König. “Closer ties between microprudential and macroprudential supervision will improve the quality of our work.”

Division of tasks between the Committee and Bundesbank

Responsibility for supervising the stability of the German financial market will henceforth be divided between the Financial Stability Committee and the Bundesbank. In accordance with FinStabG, the Bundesbank is primarily responsible for analysing factors that are key to financial stability and identifying risks and, where appropriate, making proposals to the Financial Stability Committee regarding the issuing of warnings. It is also to recommend measures to help combat these risks.

The Committee can issue warnings and recommendations for countermeasures on this basis, some of which are confidential. These may be issued to the German federal government, BaFin or another German public body. The warnings and recommendations will not, however, be legally binding. The addressees must either declare their plans for implementation of the recommendation or provide reasons for not be putting a recommendation into practice (“act or explain” mechanism). “One thing is certain – we will be taking every single warning and recommendation very seriously,” said BaFin's President.

The Bundesbank is to provide the Committee with an assessment of the implementation measures taken by the addressees. The Committee also has the opportunity to publish warnings and recommendations. The Committee remit also includes advising on how to deal with warnings and recommendations issued by the ESRB and strengthening collaboration between the institutions represented on the Committee in the event of a financial crisis.

Exchange of information

It is essential that the required information is available in order to identify risks to financial stability right away. BaFin and the Bundesbank thus have an obligation to supply each other with the information they require to perform their duties. Furthermore, the Bundesbank has the right to request information from financial corporations if it cannot obtain the information it requires from other authorities. This provision enables the Bundesbank to also obtain data required to monitor the shadow banking sector, for example. The Committee can exchange information with the ESRB and the authorities responsible for ensuring financial stability in other EU member states. It will also keep the ESRB informed of its warnings and recommendations. If major cross-border consequences are anticipated, it must inform the ESRB before issuing warnings or recommendations.

The content of the Committee's meetings is confidential to enable the open exchange of opinions. The Committee's work will, however, be made transparent by the publication of selected warnings and recommendations and by an annual report submitted to the German Bundestag.

Regulatory plans

Major changes are to be made to the macroprudential regulatory framework over the next few years. This will also have an impact on the Committee's work. For example, the CRD IV package, which consists of a Directive (Capital Requirements Directive – CRD IV) and a Regulation (Capital Requirements Regulation – CRR), will, among other things, implement Basel III in Europe. This Directive provides for countercyclical capital buffers; banks are to create additional capital buffers in times of economic upswing to ensure a stable supply of credit when the economy slumps. The risks associated with excessive lending growth for the banking sector are also to be limited.

In addition, the European Commission, Council and European Parliament are currently conducting joint negotiations to pass an EU Regulation on a single supervisory mechanism for eurozone banks. The Regulation will transfer central supervisory duties to the European Central Bank (ECB). The intention is for macroprudential supervision to remain with the national authorities; however these will have to inform the ECB of macroprudential measures and take its objections into account. In exceptional cases, the ECB will be entitled to impose more stringent macroprudential requirements.