Mr Röseler, what is currently causing the greatest difficulties for banks in terms of risk management?

Interest rate risk continues to be a real issue in risk management. Although many institutions have weathered the abrupt interest rate turnaround rather well, many have used up their hidden reserves. This means their first line of defence is gone.

Institutions will have to bear this in mind – especially because we can’t rule out the possibility of further interest rate hikes, and it will take a while for some effects of rising interest rates to become noticeable.

Over the past few months, however, there have also been growing signs of an increase in credit risk resulting from the economic downturn. Institutions need to have this on their radar as well. How can banks identify credit default risks as early on as possible and at least adequately price them in? The MaRisk amendment sets out clear specifications for this, for example with regard to loan monitoring and – where necessary – the revaluation of collateral and credit quality.

Won’t the new requirements make it even more difficult for banks to grant loans in these economically challenging times – especially for smaller institutions?

It’s true that the new EBA guidelines have resulted in some additional formal requirements to institutions’ processes, particularly when it comes to granting loans. But to be perfectly honest, in a best case scenario these process steps aren’t new for banks at all: risk-oriented institutions are already doing things this way – as a matter of course and out of self-interest. In addition, there are still opening clauses in place for non-risk-relevant loans. This is the result of an intensive dialogue we have been having with the banking industry – a solution that I would say is reasonable, proportionate and risk-oriented. A solution that will help us to avoid an over-regulated process.

This seventh amendment to the MaRisk is the first one to also set out requirements for real estate held by banks. Why is BaFin intervening in this respect?

Many credit institutions have bought properties in recent years, aiming to benefit from the booming real estate market. This is understandable from an economic point of view – they naturally want to increase their income, particularly in the low interest rate environment. Some institutions complemented their risk and business strategy by purchasing real estate on a large scale; some even had exposures along the entire value chain . Our objective now is to ensure that banks will have the risks under control when the tide turns. Prices and valuations have begun to fall – it’s high time that we address the matter in the MaRisk. And, as it turns out, not only in the MaRisk: we have also been conducting inspections of the institutions’ own real estate holdings. We are currently assessing the results. What is becoming clear even now is that we are getting a great many interesting insights.

Here too, we are taking a risk-oriented approach. Not every bank is equally affected by the rules that the MaRisk sets out for real estate. Those banks with a relatively low level of real estate holdings do not have to comply with the new requirements.

Speaking of proportionality: the amended MaRisk set out less stringent sustainability requirements for smaller institutions. But they are the ones who have some catching up to do in terms of ESG. Isn’t that counterproductive?

Our requirements also have to be reasonable. A regional institution with 30 employees simply does not have the same sustainability risk as a major international player. A one-size-fits-all approach would be devastating in that case. After all, the explicit inclusion of ESG risks in the MaRisk is not meant to prevent credit institutions from financing the transition of the economy.

Instead, we want to make clear that institutions need to strategically and adequately manage sustainability risks and have them under control – in terms of occurrence probability, potential loss amount and concentration risk (in individual portfolios). Specifically, relative to the size of the institution. This is precisely what we call for in the MaRisk. You can be sure that we will be assessing this issue in exactly the same way as other MaRisk issues. I am convinced that this amendment to the MaRisk will have a role in helping especially smaller institutions to move forward in terms of sustainability.