“Since March, the global financial system has been going through a kind of stress test in real time,” said Branson. While it has always been clear that an end to low interest rates would result in turbulence, this seems to have come as a surprise to some market participants, he continued. In Branson’s view, we cannot be certain that this difficult period has come to an end. “Periods of stress often come in waves,” he explained.

According to Branson, the effects of previous interest rate increases are not yet fully clear, and further increases are also possible. He further explained that risks arising from interest rate increases also affect German institutions: “These risks have been in our focus for a long time now.” Institutions with effective risk management have their interest rate risks under control, he explained, and these institutions are benefiting from higher margins and are already posting higher revenues. According to Branson, BaFin is closely monitoring a handful of small institutions with low reserves and capital buffers in addition to currently high interest rate risks.

“So far, however, we see here no danger of a systemic crisis,” Branson made clear. In his view, the important thing now is that we learn the right lessons from the events of recent months: “We must examine very carefully in what areas regulation, supervision and resolution planning need to be sharpened.”

At the same time, Branson warned that nowadays, liquidity risks can arise much more quickly than in the past. There are no rational grounds for a liquidity crisis at German institutions, Branson explained. However, there are also irrational fears, he warned, and these psychological factors must not be underestimated.

In his speech, Branson also talked about approaches for dealing with institutions that are experiencing difficulties: “Expensive, improvised government rescue missions for small or medium-sized institutions cannot be the right approach.” In Branson’s view, we cannot have a system in which all institutions need to be rescued. According to Branson, it should be possible for institutions to quickly exit the market.

At the same time, he emphasised that the resolution of large systemically important institutions must be possible. Branson explained that this was one of the key concerns of the reforms following the 2007/2008 crisis. “Never again should an institution be too big to fail. We must not abandon this goal,” Branson declared. “We need a resolution regime in which we can all place our trust.”

On 9 May, BaFin also presented its Annual Report 2022. The report is available for download on the BaFin website.