Looking at their own calculations and forecasts, the banks reported a total drop in pre-tax profits of one-quarter up to 2019. If the low-interest-rate environment persists until 2019, profits could slump by up to 50% – worse still, if interest rates experience a further decline compared with last autumn and total assets remain unchanged, the plummet could be as great as 75%.
As central bankers, our concern here is not the profits generated by the banks per se; instead, it is the banks’ ability to transmit monetary policy stimuli. German banks have balance sheet reserves and are well capitalised.