No winners and Losers from Covid-19: Germany central bank

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No winners and Losers from Covid-19: Germany central bank

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Germany's Bundesbank warned that a remarkably low number of business failures during the Covid-19 epidemic shouldn't be seen as a guide for future risks.

The financial system emerged largely uncathed after banks didn't face a serious test thanks to government support that propped up companies and households during the recession last year, thanks to the financial system's support, it said in its Financial Stability Review.

It said that it did not mean that the link between the broader economy and credit risk was broken forever.

Credit risk could increase more strongly in future recessions, according to the Bundesbank. The experiences of the past few years should not be projected into the future. Germany relied heavily on loan guarantees and a job retention program to support the economy during the lock-ins to contain the spread of the coronaviruses. After a strong recovery over the summer months, the economy is facing headwinds triggered by persistent supply bottlenecks and a new spike in infections that have resulted in new restrictions on public life.

The central bank warned that rising interest rates could cause losses to the financial system. The burden of higher financing costs could be more expensive for banks than the benefit of improved interest income in the short term.

The wider system took greater risk in a search for yield during the long period of low interest rates, it said.

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