Germany - Financial Sector Assessment Program - Detailed Assessment of Observance on Basel Core Principles for Effective Banking Supervision (Electronic book text)

1. The authorities have stepped in to protect financial stability. Germany felt the force of the first shocks from the subprime mortgage markets in July 2007. Two banks-IKB and Sachsen LB-had to be rescued at significant cost to the German taxpayer. While the traditional strengths of the German financial system-its retail deposit base and low indebtedness of households and businesses-apparently put a cap on the exposure of the system, systemic concerns have remained live. Following the failure of Lehman Brothers, the liquidity rollover requirements at Hypo Real Estate in early October 2008 were another threat to financial stability. The public commitment to protect household deposits provided initial reassurance. This was followed by a comprehensive package in mid-October to support market liquidity and bank capitalization.