With these buffers, banks are then better equipped to absorb losses – that strengthens their ability to lend even in the event of adverse shocks. Thus, sufficient capital is a safeguard for the proper functioning of the financial system, including in stress episodes and during periods of structural change.
In January 2022, German supervisors announced a package of macroprudential measures to address increasing vulnerabilities in the German financial system.7 The countercyclical capital buffer was set at 0.75%, and the sectoral systemic risk buffer (on exposures secured by residential real estate) at 2% of risk-weighted assets. Both measures will bolster banks’ resilience to adverse developments.