US Federal Reserve makes it easier for banks to access short-term loans

Fed chief Jerome Powell

In contrast to the financial crisis, the Fed boss now wants to show more transparency from the start.


(Photo: dpa)

Washington The US Federal Reserve makes it easier for commercial banks to access their loans in the corona crisis. To this end, the requirements for short-term so-called intraday loans would be relaxed, she announced on Thursday. This is to ensure that lending will continue during the coronavirus pandemic. To this end, it temporarily waives the limits on unsecured loans and overdraft fees for banks that are eligible for this program.

This measure, which will initially apply until September, will not “significantly” increase the credit risk for the central bank. It should encourage banks to rely on the Fed for all their daily credit needs in a turbulent time. Some money houses could be exposed to “unforeseen intraday liquidity constraints” as a result of the corona virus pandemic and the resulting economic disruptions.

In addition, the Fed wants to play with open cards in the allocation of its multi-billion dollar loan aid in the fight against the corona crisis. For this purpose, details should be published at least once a month, who borrowed how much, announced them on Thursday. The Fed is for “transparency and accountability,” said President Jerome Powell. The central bank had announced a $ 2.3 trillion program that companies, states, and counties could access to help deal with the pandemic.

The now announced transparency offensive marks a departure from the secrecy that the Fed had operated during the 2007-2009 financial crisis. At that time, she refused to give the names of the borrowers – for fear of scaring shareholders. Details were only released after the so-called Dodd-Frank Act of 2010 obliged the central bank to publish it.

In some areas, however, the Fed wants to continue to maintain confidentiality, such as certain money market transactions. This should avoid stigmatization that could prevent companies from doing business when needed, the Fed said.

More: Fed launches multi-billion dollar Corona aid.

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“Without a state, it is currently not possible”

Frankfurt After the financial crisis, the rules for banks were tightened significantly. The corona pandemic now shows where the new rules work and where they don’t. Bundesbank board member Joachim Wuermeling is overall satisfied with the result. Nevertheless, he stated in the Handelsblatt interview that the financial institutions alone would be overwhelmed with the sharp rise in credit requirements in the corona crisis. “That is why it is currently not possible without the state as the guarantor.”

As part of a special program of the KfW promotional banks, the institutes grant loans in the corona crisis for which the state is 80, 90 or even 100 percent liable. From Wuermeling’s point of view, this is a good solution, after all, banks should not be able to provide enough loans if they cannot count on repayment. “If the state nevertheless wants to help companies for good reasons, it takes on the risks in the interest of the common good.”

The German banks are doing well in the corona crisis “according to the circumstances,” says Wuermeling. However, he fears that there will be more bankruptcies and loan defaults.

“The credit risks are really our biggest concern.” And they will only be reflected in the bank balance sheets with a delay. “I expect the burdens to increase significantly in the third or fourth quarter.”

Wuermeling rejects the creation of a European bad bank to reduce bad loans, as suggested by the ECB’s banking supervision. “This proposal is basically three years old and was not followed up for good reasons at the time.”

The top ECB bank supervisor Andrea Enria had already asked for a bad bank in 2017 in his old role as head of the banking authority Eba. “The reduction in non-performing loans has since made good progress even without such an institution, thanks in part to the resolute crackdown by the European banking supervisory authority SSM, which Andrea Enria now heads,” said Wuermeling. “That is why I do not believe that the initiative from that time will be taken up again at EU level.”

Read the full interview here:

Mr. Wuermeling, how are German banks doing in the corona crisis?
According to the circumstances, the German banks are still doing well. They currently have capital buffers in the hundreds of billions, with which they can grant loans and also cushion losses from loan losses.

In view of the corona crisis, do banks have to put their goals and strategies to the test?
It is already happening. Due to the corona crisis, all institutes are forced to update their earnings forecast for the current year. Returns are falling and risk provisioning is increasing. And after the height of the crisis, many banks will have to review their strategies. The pressure on banks with business models that were vulnerable before the crisis will continue to increase

How dangerous can bank failures and loan defaults become for the banks?
Credit risks are actually the biggest concern for us. Market and liquidity risks leave their mark immediately, but are likely to remain limited overall. By contrast, the losses caused by loan defaults are reflected in the bank balance sheets with a delay of weeks and months. I expect the burdens to increase significantly in the third or fourth quarter.

Can the next banking crisis develop from the corona crisis?
The German banking system is very resilient today. But this question can only be answered reliably if we have more clarity: about the containment of the epidemic, the economic effects and how well the government countermeasures such as the loans from the KfW development bank or the short-time allowance cushion the negative effects on the economy and how quickly the recession can be overcome. It was important that the state acted quickly and comprehensively. As of today, the expected losses should be manageable for the overall market.

Federal Minister of Finance Olaf Scholz recommended that the institutes “let five be straight” when lending. Are the banks too hesitant?
In my opinion, the banks have shown great willingness so far to ensure that the real economy is supplied with credit. But you cannot bear all the risks of a shutdown of the entire economy. The supervisory authority expects banks to carry out a responsible risk assessment even in times of crisis. If the banks simply opened all the gates when lending, sooner or later this would lead to a crisis in the banks. That would not help anyone.

The state assumes 80, 90 or even 100 percent of the liability for many loans. Right?
Banks should provide the real economy with credit even in times of crisis. But a responsible credit policy also means that banks reject loan applications if they cannot expect the loan to be repaid. If the state nevertheless wants to help companies for good reasons, it assumes the risks in the interest of the common good.

What is your interim conclusion for the banking sector after about two months of corona crisis?
It is now clear that we have learned the right lessons from the 2008 financial crisis by building up capital and liquidity buffers. The larger the buffers are, the longer banks are able to perform their tasks even in difficult times. In this respect, it was right to insist that these buffers be called for. The second good news is that the banking system works under the current circumstances. Consumers and businesses can access banking services even when many branches are closed. However, a single bank or savings bank can only prepare itself to a limited extent against a comprehensive threat to the solvency of a large number of borrowers.

So such crises cannot be overcome without state aid?
The banking system alone cannot cope with an extremely sharp rise in credit demand in the economy. That is why it is currently not possible without the state as the guarantor. We see it that way as a supervisor. If we discuss the lessons of the crisis at a later point in time, it will certainly be discussed.

What could solutions look like?
Instruments have now been developed ad hoc under high time pressure to use government aid quickly and in a targeted manner. Fortunately, in Germany we have established channels through KfW and other promotional banks to provide loans with government guarantees to the real economy relatively quickly via the banking system. In future, the regulatory framework for such measures must be designed in such a way that it can take full effect immediately

What do you think of the top ECB supervisor Andrea Enria’s proposal to set up a European bad bank? This could solve the problem of old bad loans before new bad loans are added in the wake of the corona crisis.
This proposal is essentially three years old and was not followed up at that time for good reasons. The reduction in non-performing loans has since made good progress even without such an institution, also thanks to the resolute crackdown by the European banking regulator SSM, which Andrea Enria now heads. That is why I do not believe that the initiative from that time will be taken up again at EU level.

BdB President Hans-Walter Peters, who has just left office, has demanded that the ECB should reimburse the banks already paid negative interest of 26.5 billion euros so that they can grant more loans in the corona crisis. What do you think of the idea?
There is no need to return negative interest at all. It is not a targeted levy for banks, but a monetary policy measure. Banks have to learn to deal with it.

Mr Peters also suggested that the ECB should buy subordinated bank bonds in order to strengthen the capital of the financial institutions.
In my view, that would also not be appropriate. Central banks in the euro zone are currently only buying senior bonds for risk reasons. In addition, the purchase of subordinated bank bonds from supervised institutions would also represent a conflict of interest for the central bank.

Do you think the banks’ demands for more aid are fundamentally absurd?
The previous easing should give the banks enough scope for more credit and loss absorption. It annoys me when now long-discussed proposals come up with the new coat of “crisis measure” on the table, for example the general recognition of self-developed software as equity. This distracts us all from the real challenge.

Before Corona, banking regulators demanded that banks cut costs and increase profitability. Are these demands still valid in the corona crisis?
If you want to act responsibly in the crisis, you have to set your priorities from now on. It is a top priority for us that bank operations and the cash flow are maintained – even when branches are closed and many bank employees work from home. That worked. And we want to make sure that banks continue to perform their important economic functions and lend without risking their stability. This shifted focus in no way means that all other aspects are now irrelevant in the long run. We will come back to this when the acute crisis has been overcome.

Financial supervision has loosened the rules for financial institutions significantly in the wake of the corona crisis. How long should these facilities apply?
The decisions for the exemptions were not easy for us. They can only serve to overcome the crisis. Nobody should bet that they will last forever. Of course, the banks will have the necessary time to regain their normal state of capital and liquidity. But everyone must be aware that we will pull the reins back after the crisis.

Will there be adjustments to banking supervision after the corona crisis?
One lesson from the crisis is that we still have to use digital technologies to a much greater extent in order to get an easier and faster picture of the situation of the banks. In the corona crisis, we initially spoke to large banks every day about their liquidity in a conference call. In the future, it would make sense to be able to access this data directly from the banks’ systems at any time.

How quickly can this be introduced?
The digital motto “think big, start small” should apply. In countries like Israel, the supervisory authority is already checking the liquidity indicators directly in the databases of the institutes. In Europe, we should first concentrate on simple indicators, where timeliness plays an important role. This would allow us to identify problems earlier, act preventively and thus possibly prevent some damage before it arises.

How do you rate the recommendation of the European Banking Authority (SSM) not to distribute dividends – is this appropriate or is it exaggerated in its overall rate?
It is in the interest of financial stability that banks retain their capital in the current situation in order to cushion risks and to be able to grant loans. In my view, there would have been reasons in one or the other special case to allow distributions. But we need a uniform approach in the euro area.

Does the distribution ban also apply to savings banks and Volksbanks?
It is not a prohibition of dividends – this is not legally possible if the capital requirements are complied with – but a recommendation to postpone distributions until early October. We also expect small and medium-sized banks, which are supervised by BaFin and the Bundesbank, to follow this recommendation. And we are very happy that this happens.

What do you do if an incredibly heavily capitalized Volksbank wants to distribute part of its profits despite your urgent recommendation?
It is understandable that it is not easy for a very well positioned bank to follow this. However, this is a collective precaution by all European banks. Because of the epochal challenge posed by the pandemic for the economy and society throughout the euro area, capital should remain in the financial system for now. No bank should go out there. So far, banking supervision in Germany has mostly succeeded in convincing institutions of the usefulness of such measures

Mr. Wuermeling, thank you very much for the interview.

More: Banking Association President Zielke: “Must review Corona business model”

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Deutsch-Banker is preparing for higher credit risks

Frankfurt Stefan Hoops heads the corporate division of German bank. The part that is to form the core of the largest domestic money house according to the new strategy. At the same time, the corporate bank is also at the center of the corona crisis. Because of the massive distortions, Hoops fears that Europe’s banks will have to face higher risks in the lending business: “We will probably see more defaults than before,” warns the manager.

On the question of whether the bank can still meet its own targets, Hoops says: “If we have to adjust targets because of the corona crisis, we will communicate it accordingly”. Actually, CEO Christian Sewing had promised a black zero in operating profit for 2020 after a billion minus in the previous year.

However, analysts now expect the bank to face a loss of around two billion euros. Hoops sees additional burdens on the industry due to the fact that interest rates are even longer.

Nevertheless, the banker is optimistic that the pandemic will not trigger a banking crisis. “As long as the lockdown does not drag on unpredictably, I do not believe that European banks will face major problems,” emphasizes the 39-year-old.

Read the entire interview here:

Mr. Hoops, how are companies reacting to the corona crisis? Are everyone desperately looking for more liquidity?
The unrest was of course very noticeable for a while. At the beginning of the pandemic, when the scale was still difficult to estimate, many companies pulled their lines of credit as a precaution and tried to secure additional lines. Companies with good ratings also borrowed record amounts of funds on the bond market in the last week of March, partly to show that they can, partly preventively.

What does that mean for Deutsche Bank?
Our credit lines were used less than we would have thought possible in an extreme scenario. We also saw fewer draws in Europe than in the United States.

Deutsche Bank was caught by the corona crisis in the middle of implementing the new strategy. Does this strategy still fit?
It is now becoming apparent that our new strategy fits very well. Two fundamental decisions were particularly important: First, it helps us a lot now that we have concentrated all offers for corporate customers in one area. This business will certainly have the most shifts in market share in the coming quarters from which we want to benefit. It is also good that we have closed stock trading with institutional clients. The market leaders in this area have certainly earned very well in recent weeks thanks to the sharp price fluctuations. But the situation was more difficult for institutions that tend to be in the midfield – and we belonged to this category in institutional equity trading.

If we had to adjust targets because of the corona crisis, we would communicate it accordingly.

Deutsche Bank has set itself ambitious goals, especially for the corporate bank. Are these goals now waste?
If we have to adjust targets because of the corona crisis, we will communicate it accordingly. Regardless of this, we are currently concentrating on processing the flood of loan applications and helping our customers as quickly as possible. That is high on our list. In many cases it is very complex. Especially when you advise companies that are active in different currency areas and countries, since government aid programs are designed differently depending on the country.

What about the credit business?
We are seeing significantly more interest here. Not only for KfW loans, the demand has generally risen worldwide, also on the part of the corporations. In the past, banks gave loans to large corporations practically free of charge to get other, more lucrative businesses, such as payments or foreign exchange. The days of subsidized corporate loans seem to be over.

That would be positive for the banks, but interest rates will generally remain lower for a longer time, which will put pressure on margins. How will these opposing aspects impact overall?
The bottom line is that the negative interest rate effect will overlay the positive aspects. However, banks with more business in the dollar zone are likely to be hit harder than institutes with a focus on Europe. In the euro zone, the industry has long had to deal with how to earn something in a negative interest rate environment. Dollar-heavy banks first have to think into such a scenario. Many businesses that still paid off with a two percent risk-free interest rate will no longer pay off.

Does Corona also change Deutsche Bank’s pricing policy with regard to custody fees for corporate customers’ deposits?
Basically, we stay with our line. We pass the interest on to corporations and large corporate customers, but we do grant allowances. We engage in intensive discussions with our customers and look at the entire relationship – the corona crisis naturally also plays an important role in this. In the end, the amount of the allowances also depends on the scope of the overall customer relationship.

The banks have long struggled to lend to German companies. Now companies that do not have a house bank at their side are skidding. Why isn’t the interest of banks in new customers growing?
In order to obtain loans from the KfW state development bank, companies need a house bank. If a customer is not yet in the system, we first have to subject him to a credit and identity check. This is not a quick process, and even now the banking regulator does not allow us to be careless. In view of the high demand, most employees have their hands full serving the existing customers. Fortunately, we have succeeded very well so far. In such an environment, it is of course difficult to squeeze out resources to get new customers on board.

What about customers who were previously only occasional customers?
After that we do not differentiate. If a customer has gone through the system and through the credit and identity check with us, we are there for them. Ultimately, it’s about a resource issue. We are a house bank for a significant number of companies, but have so far not granted any loans to these customers. Even in such cases, the credit check does not work overnight. It may be that the KfW rapid loan brings relief because it only requires a simplified check.

Was it really necessary for the taxpayer to be 100 percent liable for these loans?
In our view, yes – in the interest of the overall economy. Anything else would slow down the process considerably.

Why?
We have around 1.1 million corporate customers in Germany with sales of between EUR 250,000 and EUR 50 million, which are generally eligible for a quick loan. A significant number of these companies have no credit history, and a regular review would take too long. In the case of fast loans, the government has clearly specified which parameters we need to check and which not. This makes it much easier for banks to grant a loan right away. This gives companies valuable time that they urgently need right now.

Is that the only advantage?
This is a big advantage in this situation. Because some customers come from difficult industries in which the turnover has dropped 100 percent overnight, such as hotels or coach companies. This raises the question for all banks of how big the creditworthiness of such customers is at the moment. And there are cases in which – depending on the further course of the corona crisis – the question will arise in the medium term whether companies can survive without additional equity. Normal bank loans, but also the usual KfW loans reach their limits. The KfW rapid loan does not require collateral, which can be helpful in such borderline cases.

Some U.S. banks have already released their first quarter results. Most of them significantly increase loan loss provisions. Will that also happen in Germany?
You have to look at it differently, and there are significant differences. German and European banks, for example, are not so heavily involved in the credit card business – but it is precisely here that American banks are now recording high provisions. There are basically four components that have a major impact on risk provisioning: large individual defaults, many small defaults, or a trend towards poorer credit ratings, which forces banks to put more capital into credit. There are also accounting details because banks also have to provide more equity for loans if interest and principal are deferred.

How big will the overall effect be?
The extensive aid programs of many European countries, especially for smaller companies, will make a significant contribution to ensuring that many companies do not get into serious difficulties in the first place. Short-time work also helps to keep unemployment from skyrocketing like it is in the United States. We are likely to see more failures than before. If only because there have been hardly any failures in the past ten years.

How dangerous is development? Do we have to fear a banking crisis after the corona crisis?
As long as the lockdown doesn’t go on forever, I don’t think European banks are going to have any big problems. European companies will probably be able to deal with this scenario, especially since government measures help to stabilize the situation.

Let us take a look into the future. What could the long-term economic consequences of the corona crisis look like?
In terms of healthcare, Germany seems to be steering through the crisis better than other countries. It is definitely good for people. It was also very important that the German government provided aid very quickly and extensively. That helps all industries. However, we have the disadvantage that the German economy has a strong international focus. When world trade shrinks, it is bad for domestic companies. Some industries will also have to adjust to customer behavior changes.

Which industries do you have in mind?
I believe that people will save more in the future. This will also consume less, with staples still on the shopping list. For example, the middle price segment could have problems. Ordinary earners will consider whether they really need the expensive new TV or would rather wait a bit. Online trade could also gain in importance, at the expense of shopping centers and shops in the city centers.

What about the mobility industry? Will you still go on business trips as often as before?
I will definitely continue to fly to Asia or the USA. With a view to the time difference alone, such trips cannot be completely replaced by video conferencing. But short-distance business trips will be much less common, and people will also be more concerned about vacation trips than before. This has an impact on traffic and tourism. But there will also be relative winners in industries that are shrinking overall.

And how will the corona crisis change your industry?
Certain trends will accelerate significantly, everything that has to do with digitization, online payment processes or the support of e-commerce, for example. In addition, many companies will finance themselves in a completely different way in the future than they do today. We can very well imagine that companies are moving more towards buying machines instead of buying them. This would make it easier to cushion production losses, which would of course be an enormous advantage in the current situation.

What about other megatrends? Are topics like sustainability permanently pushed into the background by the pandemic?
Many in our industry share this concern. At the beginning of this year, I assumed that the topic of sustainability 2020 would occupy me intensively. Now I’m afraid that the whole complex is no longer getting the attention it still deserves. That would be bad collateral damage to the pandemic. However, I firmly believe that this pandemic will also make us think more about the future of our planet. So the topic will climb up on the agenda again.

We almost landed close to the best case scenario.

Corona is slowing globalization. Isn’t that also a clear disadvantage for Deutsche Bank, which not least advertises with its internationality?
If world trade shrinks, banking services based on that trade will suffer, that’s the nature of it. If the cake gets smaller overall, our goal must be to get a bigger piece of it. The feedback from our customers, especially in these weeks, shows me that we are perceived as a reliable and robust partner in the crisis – and that makes me confident.

How do you work as a global bank from your home office? Errors or failures are often even more critical in banking than in other industries.
It works amazingly well. When we intensified preparations for working from home six or seven weeks ago, we developed various scenarios – and we almost ended up close to the best-case scenario. This is mainly due to our IT and operations departments, which do a great job. Around two thirds of the entire workforce of Deutsche Bank currently work from home, and that very efficiently. So we will also think about how we will organize our work in the future.

Perhaps it helps that Deutsche Bank has already weathered one or two of the crises in recent years?
It is certainly true that we have learned to work together particularly effectively in past crises. And we’ve certainly developed a very careful view of what can go wrong over the years. For example, we have always been very careful about IT and processes, but now we have been able to help customers who have had technical problems.

What is the most important lesson from the corona crisis for you as a banker?
That the role of customer advisors has become significantly more important than that of product and process experts. It is about understanding exactly how a company really works, what effects the corona crisis has on the individual areas of a company and what the owners or managers need most at the moment. This is also a nice confirmation for our colleagues who have been at their customers’ side for years. We are currently experiencing tailwind.

And as a father in the home office?
Perhaps we have underestimated the role of the teachers who teach our children every day.

Mr. Hoops, thank you for the interview.

More: Why banks should see the crisis as an opportunity.

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Deutsche Bank is preparing for higher credit risks

Frankfurt Stefan Hoops heads the corporate division of German bank. The part that is to form the core of the largest domestic money house according to the new strategy. At the same time, the corporate bank is also at the center of the corona crisis. Because of the massive distortions, Hoops fears that Europe’s banks will have to face higher risks in the lending business: “We will probably see more defaults than before,” warns the manager.

On the question of whether the bank can still meet its own targets, Hoops says: “If we have to adjust targets because of the corona crisis, we will communicate it accordingly.” Actually, CEO Christian Sewing had a profit in 2020 for one billion euros last year promised a black zero.

However, analysts now expect the bank to face a loss of around two billion euros. Hoops sees additional burdens on the industry due to the fact that interest rates are even longer.

Nevertheless, the banker is optimistic that the pandemic will not trigger a banking crisis. “As long as the lockdown does not drag on unpredictably, I do not believe that European banks will face major problems,” emphasizes the 40-year-old.

Read the entire interview here:

Mr. Hoops, how are companies reacting to the corona crisis? Are everyone desperately looking for more liquidity?
The unrest was of course very noticeable for a while. At the beginning of the pandemic, when the scale was still difficult to estimate, many companies pulled their lines of credit as a precaution and tried to secure additional lines. Companies with good ratings also borrowed record amounts of funds on the bond market in the last week of March, partly to show that they can, partly preventively.

What does that mean for Deutsche Bank?
Our credit lines were used less than we would have thought possible in an extreme scenario. We also saw fewer draws in Europe than in the United States.

Deutsche Bank was caught by the corona crisis in the middle of implementing the new strategy. Does this strategy still fit?
It is now becoming apparent that our new strategy fits very well. Two fundamental decisions were particularly important: First, it helps us a lot now that we have concentrated all offers for corporate customers in one area. This business will certainly have the most shifts in market share in the coming quarters from which we want to benefit. It is also good that we have closed stock trading with institutional clients. The market leaders in this area have certainly earned very well in recent weeks thanks to the sharp price fluctuations. But the situation was more difficult for institutions that tend to be in the midfield – and we belonged to this category in institutional equity trading.

If we had to adjust targets because of the corona crisis, we would communicate it accordingly.

Deutsche Bank has set itself ambitious goals, especially for the corporate bank. Are these goals now waste?
If we have to adjust targets because of the corona crisis, we will communicate it accordingly. Regardless of this, we are currently concentrating on processing the flood of loan applications and helping our customers as quickly as possible. That is high on our list. In many cases it is very complex. Especially when you advise companies that are active in different currency areas and countries, since government aid programs are designed differently depending on the country.

What about the credit business?
We are seeing significantly more interest here. Not only for KfW loans, the demand has generally risen worldwide, also on the part of the corporations. In the past, banks gave loans to large corporations practically free of charge to get other, more lucrative businesses, such as payments or foreign exchange. The days of subsidized corporate loans seem to be over.

That would be positive for the banks, but interest rates will generally remain lower for a longer time, which will put pressure on margins. How will these opposing aspects impact overall?
The bottom line is that the negative interest rate effect will overlay the positive aspects. However, banks with more business in the dollar zone are likely to be hit harder than institutes with a focus on Europe. In the euro zone, the industry has long had to deal with how to earn something in a negative interest rate environment. Dollar-heavy banks first have to think into such a scenario. Many businesses that still paid off with a two percent risk-free interest rate will no longer pay off.

Does Corona also change Deutsche Bank’s pricing policy with regard to custody fees for corporate customers’ deposits?
Basically, we stay with our line. We pass the interest on to corporations and large corporate customers, but we do grant allowances. We engage in intensive discussions with our customers and look at the entire relationship – the corona crisis naturally also plays an important role in this. In the end, the amount of the allowances also depends on the scope of the overall customer relationship.

The banks have long struggled to lend to German companies. Now companies that do not have a house bank at their side are skidding. Why isn’t the interest of banks in new customers growing?
In order to obtain loans from the KfW state development bank, companies need a house bank. If a customer is not yet in the system, we first have to subject him to a credit and identity check. This is not a quick process, and even now the banking regulator does not allow us to be careless. In view of the high demand, most employees have their hands full serving the existing customers. Fortunately, we have succeeded very well so far. In such an environment, it is of course difficult to squeeze out resources to get new customers on board.

What about customers who were previously only occasional customers?
After that we do not differentiate. If a customer has gone through the system and through the credit and identity check with us, we are there for them. Ultimately, it’s about a resource issue. We are a house bank for a significant number of companies, but have so far not granted any loans to these customers. Even in such cases, the credit check does not work overnight. It may be that the KfW rapid loan brings relief because it only requires a simplified check.

Was it really necessary for the taxpayer to be 100 percent liable for these loans?
In our view, yes – in the interest of the overall economy. Anything else would slow down the process considerably.

Why?
We have around 1.1 million corporate customers in Germany with sales of between EUR 250,000 and EUR 50 million, which are generally eligible for a quick loan. A significant number of these companies have no credit history, and a regular review would take too long. In the case of fast loans, the government has clearly specified which parameters we need to check and which not. This makes it much easier for banks to grant a loan right away. This gives companies valuable time that they urgently need right now.

Is that the only advantage?
This is a big advantage in this situation. Because some customers come from difficult industries in which the turnover has dropped 100 percent overnight, such as hotels or coach companies. This raises the question for all banks of how big the creditworthiness of such customers is at the moment. And there are cases in which – depending on the further course of the corona crisis – the question will arise in the medium term whether companies can survive without additional equity. Normal bank loans, but also the usual KfW loans reach their limits. The KfW rapid loan does not require collateral, which can be helpful in such borderline cases.

Some U.S. banks have already released their first quarter results. Most of them significantly increase loan loss provisions. Will that also happen in Germany?
You have to look at it differently, and there are significant differences. German and European banks, for example, are not so heavily involved in the credit card business – but it is precisely here that American banks are now recording high provisions. There are basically four components that have a major impact on risk provisioning: large individual defaults, many small defaults, or a trend towards poorer credit ratings, which forces banks to put more capital into credit. There are also accounting details because banks also have to provide more equity for loans if interest and principal are deferred.

How big will the overall effect be?
The extensive aid programs of many European countries, especially for smaller companies, will make a significant contribution to ensuring that many companies do not get into serious difficulties in the first place. Short-time work also helps to keep unemployment from skyrocketing like it is in the United States. We are likely to see more failures than before. If only because there have been hardly any failures in the past ten years.

How dangerous is development? Do we have to fear a banking crisis after the corona crisis?
As long as the lockdown doesn’t go on forever, I don’t think European banks are going to have any big problems. European companies will probably be able to deal with this scenario, especially since government measures help to stabilize the situation.

Let us take a look into the future. What could the long-term economic consequences of the corona crisis look like?
In terms of healthcare, Germany seems to be steering through the crisis better than other countries. It is definitely good for people. It was also very important that the German government provided aid very quickly and extensively. That helps all industries. However, we have the disadvantage that the German economy has a strong international focus. When world trade shrinks, it is bad for domestic companies. Some industries will also have to adjust to customer behavior changes.

Which industries do you have in mind?
I believe that people will save more in the future. This will also consume less, with staples still on the shopping list. For example, the middle price segment could have problems. Ordinary earners will consider whether they really need the expensive new TV or would rather wait a bit. Online trade could also gain in importance, at the expense of shopping centers and shops in the city centers.

What about the mobility industry? Will you still go on business trips as often as before?
I will definitely continue to fly to Asia or the USA. With a view to the time difference alone, such trips cannot be completely replaced by video conferencing. But short-distance business trips will be much less common, and people will also be more concerned about vacation trips than before. This has an impact on traffic and tourism. But there will also be relative winners in industries that are shrinking overall.

And how will the corona crisis change your industry?
Certain trends will accelerate significantly, everything that has to do with digitization, online payment processes or the support of e-commerce, for example. In addition, many companies will finance themselves in a completely different way in the future than they do today. We can very well imagine that companies are moving more towards buying machines instead of buying them. This would make it easier to cushion production losses, which would of course be an enormous advantage in the current situation.

What about other megatrends? Are topics like sustainability permanently pushed into the background by the pandemic?
Many in our industry share this concern. At the beginning of this year, I assumed that the topic of sustainability 2020 would occupy me intensively. Now I’m afraid that the whole complex is no longer getting the attention it still deserves. That would be bad collateral damage to the pandemic. However, I firmly believe that this pandemic will also make us think more about the future of our planet. So the topic will climb up on the agenda again.

We almost landed close to the best case scenario.

Corona is slowing globalization. Isn’t that also a clear disadvantage for Deutsche Bank, which not least advertises with its internationality?
If world trade shrinks, banking services based on that trade will suffer, that’s the nature of it. If the cake gets smaller overall, our goal must be to get a bigger piece of it. The feedback from our customers, especially in these weeks, shows me that we are perceived as a reliable and robust partner in the crisis – and that makes me confident.

How do you work as a global bank from your home office? Errors or failures are often even more critical in banking than in other industries.
It works amazingly well. When we intensified preparations for working from home six or seven weeks ago, we developed various scenarios – and we almost ended up close to the best-case scenario. This is mainly due to our IT and operations departments, which do a great job. Around two thirds of the entire workforce of Deutsche Bank currently work from home, and that very efficiently. So we will also think about how we will organize our work in the future.

Perhaps it helps that Deutsche Bank has already weathered one or two of the crises in recent years?
It is certainly true that we have learned to work together particularly effectively in past crises. And we’ve certainly developed a very careful view of what can go wrong over the years. For example, we have always been very careful about IT and processes, but now we have been able to help customers who have had technical problems.

What is the most important lesson from the corona crisis for you as a banker?
That the role of customer advisors has become significantly more important than that of product and process experts. It is about understanding exactly how a company really works, what effects the corona crisis has on the individual areas of a company and what the owners or managers need most at the moment. This is also a nice confirmation for our colleagues who have been at their customers’ side for years. We are currently experiencing tailwind.

And as a father in the home office?
Perhaps we have underestimated the role of the teachers who teach our children every day.

Mr. Hoops, thank you for the interview.

More: Why banks should see the crisis as an opportunity.

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Fintechs feel disadvantaged when it comes to credit distribution

Berlin The run on the new quick loans from the state development bank KfW has started. But fintechs hardly play a role in the distribution of funds, and that annoys the young technology-driven financial companies: “It stunned me that the house bank principle should also apply to quick loans for small and medium-sized companies,” criticized Marko Wenthin, head of the online bank for business customers, Penta .

Although KfW is completely at risk with these loans, an entire market sector, the fintechs, is excluded from this lending process.

On Wednesday, the federal government opened another protective shield for corona-damaged companies. Companies with ten or more employees can apply for a KfW quick loan, which is 100 percent secured by the federal government. However, to the annoyance of the fintechs, these loans are only allowed to pass through the house banks such as savings banks, Volksbanks or private banks.

For the Penta boss, the fintechs, who are subject to bank regulation or use processes approved by the financial regulator Bafin, are predestined to participate in this public funding program. “We carry out the highest banking standards to identify our customers, the so-called KYC process (Know Your Customer), and can scale quickly thanks to our digital expertise,” said Wenthin.

The co-boss of the financial services provider for the self-employed, Kontist, agrees with the criticism. “After all, it is unreasonable to expect Penta, Kontist or other digital financial service providers to turn to a savings bank or cooperative bank especially for public aid,” says Sibylle Strack.

The Federal Ministry of Economics, however, assumes that only the use of established procedures ensures that the loans arrive at the company as quickly as possible. For this reason, lending within the framework of the KfW special program is based on the established house bank principle with the banks accredited by KfW, explained a spokeswoman. Even with a 100 percent liability waiver, certain customary bank procedures would have to be followed.

In contrast, the Federal Ministry of Finance (BMF) is open to criticism. “We are constantly reviewing proposals to further improve government aid programs. This also includes the proposal to involve fintechs in KfW lending, ”emphasized a spokeswoman. The chairman of the Fintech Council, who is located at the BMF, does not see the door slammed yet. “The processes are constantly being optimized at high pressure. I also see the greatest potential for working with fintechs there, ”said Chris Bartz.

Ineffective aids

Fintechs are not only criticizing the practice of granting KfW quick loans. For Kontist’s co-boss, the Corona emergency aids for self-employed persons and small businesses “go beyond the realities of life”. Her main criticism: Unlike the KfW quick loans for companies with ten or more employees, this aid should not be used as an entrepreneur’s wage. “Legislators must ensure the same conditions as quickly as possible, otherwise our clients will quickly face Hartz IV for basic security”, demands Strack. Hundreds of thousands of self-employed people could be affected.

The Federal Ministry of Economics does not explain why the emergency aid may not be used as entrepreneurial wages. But the ministry justifies the exceptions in the quick loan as follows: If the KfW quick loan is drawn on, a distribution of profits and dividends is excluded. “Due to the loan terms of up to ten years, customary market remuneration to business owners is excluded,” said the spokeswoman.

Not only fintechs like Penta and Kontist see opportunities in the corona crisis to offer help for their customers. FinAPI sees its strengths in fraud prevention. According to Florian Haagen, head of Fintech, which offers interfaces to bank accounts, among other things, applicants should be checked when granting emergency aid. “There are cases where fraudsters apply for emergency aid with little publicly available or undercover information,” he says. “In order to prevent fraud, we recommend checking whether the applicant is actually a so-called beneficial owner and the specified account is in their name or the company.”

This control is often difficult or impossible to do manually. Together with its parent company, the Schufa economic information file, FinAPI therefore offers banks the appropriate technology with which they can automatically check the applications and validate the account details provided. One is already “in very concrete talks” with various institutes.

More: Fintechs – That could be the crisis winners and losers.

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KfW eases conditions for quick credit

KfW

KfW quick loans have been available since Wednesday.


(Photo: dpa)

Frankfurt The conditions for obtaining the new KfW loans with full state liability have been softened again. Companies can now also receive the so-called KfW quick loan, which only made their way into the profit zone in 2019.

Originally, only companies should be able to receive money that made a profit in the sum of the years 2017 to 2019. “By applying to the house bank without further risk assessment, the aid quickly reaches the companies and thus helps to alleviate the severe effects of the corona pandemic,” said the head of the state development bank Günther Bräunig on Wednesday.

The loans are available to medium-sized companies with more than ten employees who have been active on the market since at least January 1, 2019. The federal government assumes the entire risk for loans of up to EUR 800,000.

KfW quick loans have been available since Wednesday (April 15). The first funds should flow to the companies this week. KfW has given the banks and savings banks a general commitment so that they can make an advance payment and pay the loans if the application conditions are met.

From April 22, the first funds will flow from KfW to the house banks. Then the necessary IT system should be in place. So far, this was only expected at the end of April.

Experts anticipate a high demand for the new quick loans. “We expect a large number of consulting requests and requests from our corporate customers in the coming days and weeks,” said one Commerzbank-Speaker. “We are well prepared to support our customers.”

With an interest rate of three percent, the quick loans are somewhat more expensive than the KfW aid loans launched at the end of March, in which part of the risk remains with the house banks and a credit check is carried out.

As of Tuesday evening, there were 9728 applications for these loans with a total volume of 22.9 billion euros, according to KfW. Around 90 percent of the applications were for loans under EUR 800,000. KfW will probably not be able to provide information on the demand for the new quick loans until next week.

More: The head of the supervisory board of Deutsche Börse calls for more help for start-ups.

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The KfW rapid loan only starts after Easter

KfW in Frankfurt am Main

Aid must also be discussed with the federal government.

(Photo: dpa)

Frankfurt German small and medium-sized companies have to be patient a little bit before the Federal Government’s latest aid program starts. Because the KfW rapid loan, for which the state is fully liable, will only be available after Easter. “We are working flat out to make the KfW rapid loan available as quickly as possible, and we firmly assume that it will be that far in the week after Easter,” said Manuela Mohr, head of the online academy at KfW, in the expert call of the Handelsblatt on Wednesday afternoon.

Federal Finance Minister Olaf Scholz (SPD) had already announced the start of the program on Maundy Thursday. But that could not be implemented so quickly. “In addition to some technical points, other important details must also be coordinated with the EU Commission and the federal government,” explained Mohr.

The KfW Schnellkredit is aimed at small and medium-sized companies with more than ten employees, based on the information available to date. Companies with up to 50 employees should be able to receive up to 500,000 euros in credit, larger companies up to 800,000 euros. The state assumes full liability if a company cannot repay the loan.

A particularly important advantage of the loan is the maximum term: it should be ten years. With the previous special programs, companies should repay the loan within five years. In the opinion of many bankers, that would have overwhelmed many healthy companies.

According to a cabinet decision, the government also wants to extend the duration of KfW’s previous special programs, but that too has yet to be approved by the EU Commission.

14,000 credit inquiries from the German bank

Many companies are longing for the new funding instrument to help overcome liquidity shortages caused by the corona pandemic. Marcus Thiel, who heads Deutsche Bank’s promotional business, observes how big the interest of small and medium-sized companies is in the new funding instrument.

The interest of the companies has been enormous since March 13th: “In the first few weeks we received well over 50,000 inquiries related to corona. These are not always credit inquiries, but sometimes general issues such as short-time work, social security contributions or tax deferrals, ”he said in the expert call.

“In total, we received significantly more than 14,000 credit inquiries, although it was not always about promotional loans.” There are still other ways to provide customers with liquidity.

“Every fifth company in Germany could go bankrupt”

The new rapid credit should provide another boost. “Since the KfW rapid loan was announced, we have seen growing momentum again,” says Thiel. “We expect that there will be a very, very high demand as soon as this product is actually available.”

According to Mohr, there is no legal claim to promotional loans. “But we assume that the hurdles for approval from the house bank are low, since KfW assumes 100 percent of the credit risk,” she says. Nevertheless, the house bank is on board as part of the application and forwards the loan.

The details of the quick loan are not yet known because the federal government is still in coordination with the EU Commission, emphasizes funding expert Thiel. “But as long as the requirements are met, we see no reason why we should not apply for such loans for our customers.”

More on the subject:

Detailed information on Corona aid from the federal and state governments

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Applications for KfW loans are skyrocketing

The state development bank KfW

KfW loans amounting to EUR 20.8 billion had been applied for by Tuesday evening.


(Photo: dpa)

Frankfurt Corporations’ applications for corona relief loans to the KfW state development bank are skyrocketing. KfW loans totaling EUR 20.8 billion had been applied for by Tuesday evening – an increase of almost EUR 8.8 billion compared to the previous day, as KfW announced on Wednesday.

The main reason for the strong increase are twelve large applications for over 100 million euros, the total volume of which now amounts to 17.2 (previous day: 12.1) billion euros.

The tourism group TUI announced on Wednesday that it had signed a contract with KfW for a bridging loan of EUR 1.8 billion.

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This is what the aid program for medium-sized companies looks like

It is almost a familiar picture. Since the outbreak of the corona crisis, Finance Minister Olaf Scholz (SPD) and Economics Minister Peter Altmaier (CDU) have been sitting in front of the capital press once a week. And every time the two announce new rescue measures. On Monday it was not a “bazooka”, but instead they closed a hole in the existing rescue parachutes that the middle class had complained about.

With a new loan program, the Federal Government wants to provide medium-sized companies with loans more easily and thus prevent a wave of bankruptcies. The plan: The state bank KfW is to secure 100 percent of small corporate loans in the future. Entrepreneurs with eleven to 49 employees can avail themselves of such a loan of up to EUR 500,000, companies with 50 employees up to EUR 800,000.

So far, KfW has hedged up to 90 percent of the default risk, while the rest of the house banks were standing. However, the economy complained that, despite this low risk, many financial institutions would not grant loans.

In the corona crisis, most businesses had to close, supply chains are broken, and many companies face payment difficulties. Associations also complained about a “middle class gap”. Unlike for small businesses and corporations, there would be no direct state aid for medium-sized companies.

The government wants to silence this criticism with its program. “The fast loans are designed to ensure that medium-sized companies quickly have liquidity without us as taxpayers losing too much money,” said Scholz.

For example, only entrepreneurs who have previously made a profit over the past three years should benefit from quick loans. The company must also be on the market since early 2019. The house bank should check whether the requirements are met. If everything works out, the loans should be available from Thursday.

For business expenses only

Companies can only use the fresh money for business expenses or investments. “Debt restructuring and redemption of credit lines are explicitly excluded,” says the key points to the law.

Entrepreneurs have to repay the quick loans within ten years and pay three percent interest on the new debt – significantly more than for KfW loans that are not 100 percent secured. A later switch to another KfW loan should be possible.

For the new program, the federal government will have to significantly increase KfW’s credit line again. Finance Minister Scholz had already made provisions in the federal budget for this. Real money is only due, however, if there is a large loss of credit and the KfW, and ultimately the taxpayer, actually has to pay for it.

The economy welcomed the new loan program. “The relief is a correct and consistent step. I hope that the money will quickly reach the factories. It is urgently needed there, ”said Eric Schweitzer, President of the German Chamber of Commerce and Industry (DIHK).

The program is also popular with banks. The house bank does not have to carry out its own risk assessment for the loans, and KfW does not. “If no further credit check is necessary, it can make a decisive contribution to ensuring that aid arrives quickly where it is needed,” said Christian Ossig, chief executive of the banking association.

Handelsblatt Morning Briefing - Corona Spezial

However, Fabio de Masi, finance politician of the Left Party, believes that additional credit guarantees are fundamentally correct. “However, it must be prevented that banks discharge their bad loans to the state and that there are high deadweight effects.”

Finance Minister Scholz does not see this danger. “With our requirements, we keep the probability of failure as small as possible and the control as low as possible,” he said.

At the same time, he announced that he might be able to present another little help to the economy together with Altmaier in the next few days. “We are not sure whether our joint public appearances will become a permanent facility,” said Scholz. But this third in a short time would certainly not have been the last.

More: Interview with new SME representative Thomas Bareiß: “The liquidity crisis must not become a debt crisis”.

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