At its annual press conference on Tuesday, BaFin, the German regulator, said that to mitigate the risks from low interest rates, it would raise capital requirements for the 1,600 smaller banks that it directly supervises. It also warned that “some” of Germany’s pension funds could soon be “unable to meet their commitments fully” on their own.
“We are currently discussing with them what to do next,” said Frank Grund, head of insurance and pension fund supervision at BaFin. “We’re well aware what a big responsibility we have.”
Germany’s life insurance industry has also come under pressure from low interest rates. Many companies traditionally guaranteed policyholders returns that have become increasingly hard to meet with yields on government bonds — historically one of the insurers’ main sources of income — at record lows.
Felix Hufeld, BaFin’s president, said that Germany’s life insurance industry ought to be able to meet its commitments in the short and medium term.
However, Mr Hufeld said that a proposal from Germany’s finance ministry to limit the guaranteed returns insurers can offer clients from 1.25 to 0.9 per cent per year was “correct”, and added that “it is hard to say how things will develop”.
“It could be that, in the long term, not all companies can cope with this pressure,” he said. BaFin has “a handful” of life insurers under close supervision but its officials declined to say how many could eventually have to wind their business down.
Bafin’s concerns are the latest in a string of warnings about the effect of the ECB’s policies to come from Germany — a country whose experience of hyperinflation in the 1920s has left it with a deep-seated suspicion of loose monetary policy, and where a culture of saving is deeply entrenched. [...]
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