The German financial sector is stable and robust, even though it cannot completely detach itself from global economic developments. It is difficult to predict how the economic environment will develop when Donald Trump returns to the presidency in January – even the Americans can't say for sure.

Absolutely. The stress tests have shown that the banks are well-positioned. As always, there are individual cases that raise concerns, but overall, the industry remains resilient – even under difficult conditions.

The situation has hardly changed since the beginning of the year. A major topic remains commercial real estate. While we are relaxed about residential financing, we see challenges with commercial real estate. The commercial property financing sector is under pressure, due to interest rate trends and declining property values. Additionally, there are rising insolvency rates in corporate financing – the economic environment is simply tough. The risk in the area of cyber and IT security also remains severe.

We have specifically introduced simplifications, and also cleared up misunderstandings that arose from the misinterpretation of regulations. An official supervisory notice has been issued on this. For example, a small savings bank in the Bavarian Forest with 15 employees thought it had to conduct 13 stress tests annually. In reality, three to five would have been perfectly sufficient. We have found similar cases in other institutions. The misunderstanding arose from an inaccurate interpretation of the regulations. We have clarified that this is not necessary.

Exactly. We are clarifying what is truly intended. But we are also providing relief for banks. For instance, smaller institutions will no longer have to conduct inverse stress tests – that is, tests that examine what events could endanger a bank's survival. We are also simplifying reporting requirements. Banks will no longer need to separately report their recovery plans if that information is already included in other reports. I could provide further examples. More than three quarters of the institutions will benefit from these facilitations.

This is often due to the auditors wanting to protect themselves. If everything is not precisely regulated, there are interpretative gaps. To be on the safe side, many interpret the guidelines overly cautiously – and this results in unnecessary effort.

No, capital and liquidity requirements are defined by European regulations such as the CRR. We should not loosen these requirements in any way. However, with regard to bureaucratisation and proportionality, we do have some flexibility in our administrative practices, which we use to the benefit of the institutions.

In euros and cents, it's difficult to quantify. But for the individual bank, this is not the decisive factor. For the savings bank in the Bavarian Forest, what matters is that the employee who was previously mostly occupied with stress tests, is now freed up. These are the changes that are felt on the ground.

The structure of the German banking market fits very well with the structure of our economy. The large number of small and medium-sized banks is a clear advantage. We are seeing some consolidation, which is related to regulation, but also to economies of scale and the problem of finding sufficiently qualified staff.

I think this number is exaggerated. Many savings banks are disappearing, but not primarily because of regulation. Often, the business field is too small or strategic mistakes are made. Interestingly, there are small savings banks in similar regions that are profitable despite the same conditions. The quality of management plays a large role here.

Mostly, it's governance problems. Many of the banks that had to close, merge, or undergo costly restructurings had weak control mechanisms. Dominant executives made risky decisions without anyone to rein them in.

I cannot comment on individual cases. In general, our measures depend on the situation. We may recommend changes in the board of directors, strengthen the supervisory boards, or appoint special commissioners to get a bank back on track. It is important to improve governance and control mechanisms.

There are clusters, but I don’t want to limit this to one area. In our intensive supervision, we have institutions where we see serious bankruptcy risks. In our focused supervision, we have institutions with special business models – but also solid institutions that could become systemically relevant.

Often, the cause is a dominant board and weak control mechanisms. I’ve called this the „old white men“ syndrome. We specifically address this to fix the weaknesses.

Diversity is not an explicit goal, but good governance remains our focus. We see that diversity in the board of directors can prevent solitary decision-making.

They are taking preventive measures such as stable IT systems, higher equity buffers, and close collaboration with the supervisory authorities. This combination is the right approach to remain resilient.

Most banks pursue a sensible, conservative risk policy. 2023 was a very good year, and 2024 looks solid. It allows the banks to make risk provisions. I don't see any major need for action across the board. However, geopolitical risks cannot be precisely calculated. Banks also face limitations in this area.

The latent burdens are steadily decreasing, which is good. There is an earnings risk if interest rates continue to fall, but it wouldn't be existential. The decline in interest income would be moderate, and at the same time, the remaining latent burdens would disappear more quickly.

Yes, we measure interest rate risks in both directions. If they are high, there are capital surcharges – that will remain. But we are noticing that interest rate risks overall have decreased. Many banks have recognised the importance of hedging.

Interest income will slightly decrease. At the same time, value adjustments are increasing, as we already see in the higher risk provisions. This will remain the case until we see an economic recovery.

Demographic change is also a major challenge for the banks. According to a consulting firm’s estimate, savings banks could lose around 30% of their staff by 2030, and cooperative banks could lose up to 50% by 2035. This has the potential to change the structure of the sector – in my opinion, even more than regulation. The loss of skilled workers will primarily have to be compensated by digitization. But this also has its limits: If two neighbouring banks both can’t find enough staff to cover their tasks, the pressure to merge will increase. We are already seeing this in some regions.

Digitization can make processes more efficient, but it doesn’t replace everything. Digitization will inevitably change the customer experience. I don't think the overall service will be restricted, but it will adapt. New distribution and service channels will gain importance. Nowadays, it's often difficult to tell whether you're speaking to a machine or a person when calling hotlines. This kinds of automation will increase, as will changes in back-office processes. For customers, this means a change that will also be driven by their own changing expectations.

Banks have become much more creative in their recruitment efforts, but so have almost all industries. The competition for skilled workers is immense, and availability is limited. Banks are increasingly relying on alternative approaches, such as recruiting lateral entrants or making greater use of AI and automation. How this will develop can’t be predicted reliably right now. But it is clear that these changes will also alter the demands on leadership structures in the banks.

In the past, bank executives were required to have extensive experience in traditional credit and banking operations. This requirement is already changing. For example, we now accept IT experts as board members when the bank's business model justifies it – a concept that was unthinkable in the past. The evolving workforce structure and increasing digitalization will continue to reshape the requirements for leadership skills. Executives must not only bring expertise in their field but also the ability to guide a bank through complex transformations.

Banks perform better compared to other industries. Cyberattacks rarely succeed, and when something does happen, it's often an internal issue rather than an external attack. Banks are sensitive and relatively well-prepared. However, the professionalism and criminal energy behind these attacks are increasing, even more than the number of attacks themselves.

Yes, it is a race. Fortunately, there have been no incidents that caused significant damage so far. There was an attack on a leasing company that was out of operation for several months, but in that case, it wasn't critical. So far, the banks have fared well overall.

Correct. No one in the industry is resting on their laurels. The threat remains serious, and banks understand that they must consistently work on their IT security. There must be no moment of negligence.

It remains a 4. We consistently find that basic security measures are lacking, which should be standard. For example, we almost always find something lacking in the authorization systems during our inspections.

Raimund Röseler has been Chief Executive Director of the Banking Supervision division at BaFin since June 2011, making him the longest-serving member of the current directorate. When his contract ends in March 2025, the 63-year-old will retire. The search for a successor is already underway.

Before joining BaFin in 2004, where he served as Head of Financial Instruments Section, and from 2009, as Deputy Head of the Risk and Financial Markets Analysis Department, Röseler held various roles in the financial sector. These include positions at insurer Axa from 1999 to 2004, and earlier as an advisor to the German Savings Banks Association and as a securities specialist at Bayerische Vereinsbank.