Germany’s central bank has abandoned its bid to introduce a central register of every loan taken out by Germans.
New European rules meant that the Bundesbank will soon have to register every loan exceeding €25,000, or $28,600. The European Central Bank’s idea is to give authorities a better overview of systemic risks and thereby help avoid a repeat of the 2008 financial crisis.
But, worried about an overheating housing market, Bundesbank boss Jens Weidmann had decided to take things a step further and register almost all loans. It announced a threshold of almost zero, forcing banks to report even the tiniest loans. But that triggered a storm of protest from German banks.
The Bundesbank has now backed down, telling the banking industry that it would apply the European Central Bank’s higher threshold after all.
In a letter to the German Banking Industry Committee, the umbrella organization for the banking sector, the Bundesbank said it would now stick “very closely” to the requirements of the ECB. “In particular it is not planned (…) to go below the reporting limit of €25,000 euros per debtor,” said the letter, which was first reported by “Börsen-Zeitung” newspaper and has been obtained by Handelsblatt.
It’s not the first time that Jens Weidmann, president of the Bundesbank, Germany’s central bank, has thought that the European Central Bank has failed to take a strong enough line. He has been a frequent and vocal critic of the ECB’s loose money policy to tackle the near total absence of price growth in the euro zone. And he had intended to go much further than the ECB in setting up a central credit register.
The Bundesbank is keeping a close eye on a housing market in Germany that has shown some signs of overheating in the past few years.
Mr. Weidmann’s intital plan to include almost all loans in the register had shocked the banks, because it would have forced them to report an estimated 90 million loans. A number of politicians also sounded the alarm because such an extensive loan register would have raised questions about data privacy.
Banks are currently required to report loans worth €1 million or more.
The aim of such an expanded register is to give authorities an overview of how highly indebted households in the euro zone really are. Under the present system, banks don’t know if their customers already have outstanding debts with other banks.
The new loan register has been deemed especially important by the Bundesbank, which is keeping a close eye on a housing market in Germany that has shown some signs of overheating in the past few years.
The Bundesbank appears to attach particular importance to getting an overview of residential mortgages. Aside from lowering the threshold, the bank is checking whether to bring forward plans for the register by two years, which may be a necessary step to be able to quickly detect systemic risks emanating from this market.
Unlike other parts of the world, where the housing market collapsed in 2008, prices in the German real estate sector have surged since the crisis, fueled by consumers and investors that found no other place to park their money in the current low-interest environment. The market is booming in some regions at present and there are conflicting views of whether bubbles are beginning to form.
Even with the €25,000 threshold, however, the system is proving unpopular with banks because it will require them to report up to 60 million loans.
It’s not just a question of the expense and the administration entailed in reporting all the data. The German public has long been wary of any efforts to keep tabs on their actions and has placed a premium on privacy.
“With the expansion of the number of debtors that need to be registered, our banks see themselves exposed to strong reactions from customers and the public, which are sure to raise legal questions,” the banking industries group complained recently.
“It generally doesn’t make sense to collect ever more data without knowing exactly what you’re going to use it for.”
The Bundesbank plans had also run into opposition from German members of the European Parliament. Burkhard Balz, a lawmaker for Chancellor Angela Merkel’s Christian Democratic Union, said the Bundesbank’s concessions didn’t change his opposition.
“A lot remains unclear and not very transparent,” he said. “I still think that even a threshold of €25,000 is problematic and that it generally doesn’t make sense to collect ever more data without knowing exactly what you’re going to use it for.” He said the rule would place an inordinate burden on small and medium-sized banks.
Mr. Balz has also criticized the ECB, which has said that even small loans of just €100 should be reported in specific problem cases.
Sven Giegold, a lawmaker for the Greens, said the central register raised data protection issues. The Bundesbank is to receive some 120 pieces of information on loans and debtors including their address, annual income and the size of their collateral.
The Bundesbank has insisted that data security is a top priority.
“We’re already working on technical solutions to make the data anonymous,” it said in its letter. That would happen at the banks or at a so-called “Trust Center” set up at the Bundesbank. It could be a small unit that is kept separate from the rest of the central bank, the letter said.
Elisabeth Atzler covers banks and financial markets, while Yasmin Osman covers banks and supervision for Handelsblatt in Frankfurt. To contact the authors: Atzler@handelsblatt.com and Osman@handelsblatt.com