, the real economy and real estate prices : all things considered, an exceedingly severe scenario. as far as german institutions ’ profits are concerned, this extreme scenario would have a considerable impact. pre - tax results would fall into negative territory for almost half of the small and medium - sized banks. the average annual profit of the small and medium - sized institutions would drop by 91 % at its most extreme. the big banks would be affected, too : in particular, they would suffer losses in their trading business and need to increase risk provisioning in their lending business. owing to good capitalisation, however, none of the large institutions would run into difficulties. in light of the extreme scenario, that ’ s a gratifying outcome for the stability of germany ’ s banking sector. 5. conclusion ladies and gentlemen, allow me to conclude by reiterating the four main points of my speech. first, the first year of european banking supervision went smoothly. of course there are still a few things that we can improve upon, but we ’ re working on them. bis central bankers ’ speeches second, many of the items on the basel committee ’ s reform agenda have been ticked off, and the entire list is expected to be finished by the end of next year. the bundesbank is committed to regulatory certainty, since it enables banks to plan for the long term on a robust basis. third, german banks have further increased their stability – capital ratios have continued to climb ; leveraging is down further. fourth, german banks are suffering from persistent low earnings. although the low - interest - rate environment is not yet making itself felt in this regard, looking to the medium to long - term future, however, small and medium - sized institutions in particular look set to feel the pinch. ladies and gentlemen, germany ’ s banking sector has become much more stable since the crisis, but some major challenges still need to be tackled – the low - interest - rate environment and weak earnings, to name but two. these are challenges that banks must overcome in order to assure their stability and profitability. thank you very much. bis central bankers ’ speeches

, against the backdrop of declining total assets. even aggregate net interest income in 2014, at euro90. 4 billion, was euro4. 1 billion up on the year. and even the credit cooperatives and savings banks, which depend comparatively heavily on interest business, were able last year to increase further both operating income and net interest income. this they succeeded in doing by expanding credit business on the asset side of the balance sheet and by shifting financing on the liability side to transferable deposits bearing a lower rate of interest. yet both measures could easily lead to risks for the financial system. with regard to credit business, we do not currently see the savings banks and credit cooperatives loosening their lending standards, which would engender greater risk. nevertheless, banks ’ interest rate risk has increased significantly because loan maturities were expanded at the same time as lending was increased. we have seen the so - called basel coefficient, which is a measure of a bank ’ s interest rate risk, rise almost continuously since 2011. with regard to german banks, i see three dangers. first, the currently good net measurement gains and losses could return to more normal levels if the economy falters. second, banks could be forced to correct their optimistic projections of administrative spending. third, plans to increase net fee and commission income could prove unfeasible. these three things could additionally weigh on the net profits of all banks and savings banks. and of course no look at the future would be complete without a stress test. to avoid any confusion, let my begin by saying that we calculated this stress test for our financial stability review ( fsr ) on the basis of figures available to us ; the banks themselves were not involved. it is therefore not to be compared with the stress test carried out in 2014 as part of the comprehensive assessment, nor is it to be compared with the pan - european stress test which the european banking authority ( eba ) will carry out in 2016. in addition, a number of aspects were not taken into consideration in our fsr stress test – banks ’ liquidity risks and negative feedback loops between the banking sector and the real economy, to name but two. however, this “ small ” stress test, too, produced a couple of interesting findings. we analysed how the simultaneous occurrence of various macroeconomic shocks over the next three years might affect the german banking system. to this end, we assumed a sudden rise in short - term interest rates and a sharp fall in stock prices