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BaFin, Bundesbank to run stress test for smaller German banks

Germany's federal financial supervisory authority BaFin and Deutsche Bundesbank announced April 3 that they will launch a new stress test for small German lenders that are not under the supervision of the European Central Bank.

Around 1,500 savings and cooperative banks will participate in the survey designed to measure their ability to cope with interest rate changes over the next four years. They will have to respond to five scenarios, including one in which rates remain very low and another with an abrupt rate increase.

A second stage in the survey will be a test of the banks' resilience in all five hypothetical situations, and there will be a third stage at which the authorities will monitor potential effects of the low-interest-rate environment on the lenders' current performance. The focus in the third stage will be on the banks' residential mortgage lending, their pension obligations and the development of their lending standards.

The banks must provide the data requested for the first two stages of the survey by the end of May, while the relevant data for the third stage must be made available to bank supervisors by the end of June.

This is the third time BaFin and Deutsche Bundesbank are testing small German lenders. The previous two tests were in 2013 and 2015, respectively.