Who is particularly affected by the interest rate stress?

It is the fate of a supervisor that he can never be prepared for everything, but in case of doubt he is held responsible for everything. Mark Branson knows that too. "No one can reliably predict what, when and where developments will be triggered," says the head of the Federal Financial Market Supervisory Authority (BaFin). And: "As supervisors, we always have to reckon with the unexpected."

For example, with rapidly rising interest rates. These pose challenges for the banks and insurance companies supervised by the Bonn-based authority and could even cause some serious problems. In addition to possible loan defaults and market turmoil, they are a risk that BaFin believes is developing “extremely dynamically”. And to which she intends to devote herself intensively in the near future.

The authority had already warned of the risks of an abrupt rise in interest rates last year. However, their focus was still primarily on the dangers of a permanent low. And in a stress test, she calculated with a maximum increase of two percentage points within one year. In recent months, reality has overtaken the scenario.

"In the long term, the companies we supervise will benefit from the higher interest rates," said Branson at the presentation of the BaFin report "Focus on Risks" in Frankfurt/Main. In the short term, however, these often mean "more stress." The reason: Since investors have recently sold low-interest bonds on a large scale, they have lost a lot of value.

Banks that have these bonds on their books must reflect the losses on their balance sheets. Volksbanks and savings banks in particular often did not protect themselves against the fall in value, but were able to absorb it with valuation reserves. Most of them are now used up. "The first line of defense is gone," Branson said.

It is quite possible that the effect will be balanced out again when the borrowers repay the bonds in full. In individual cases, however, the losses could be so high that they push a bank's capitalization below the required minimum.

In addition, customers could withdraw money stashed away at a bank on a large scale because they receive significantly higher interest rates elsewhere. This could then force the institute to sell the bonds at the low price. "It's not always possible to hold the stock to the end," Branson said. But he doesn't have to call out "red alert" just yet.

This also applies to the risk of an increasing number of loan defaults. After years of constant lows, the number of insolvencies is likely to increase, for example in energy-intensive sectors and in medium-sized companies. So far, however, the risk provisions of the banks are still low. "BaFin will check carefully whether that's enough," said Branson. He wants to be prepared.

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