Weakness of earnings

In the language of central banks and supervisory authorities, referring to institutions with weak earnings power. The yardstick is usually the interest margin, which is the difference between the interest rate charged by an institution for loans and the interest rate the bank has to pay for refinancing. – In Germany, the interest margin was still two percent until around 1995; it fell to just under one percent in 2012. This development is attributed to various circumstances, such as above all – an increase in competition due to deregulation, – technical developments such as the Internet, which also enabled banks without a branch network to gain broad market access, – a decline in customer loyalty to a single institution, which used to be very strong in Germany in particular, combined with – demonstrably higher price sensitivity (the degree to which the price of a product affects consumer behaviors), at least in financial services. In addition, excess capacities in this special case are often defined as a situation in which the loans and investment policy of the bank produce an upsurge of risk without a corresponding increase of return. The weak earnings performance of the institutions is viewed with concern by the supervisory authorities. – See asset quality review, comprehensive assessment, institution, problematic, core capital ratio, liquidity crisis plan, liquidity risk, buffer, ko, risk-bearing capacity, stress test. – Cf. Financial Stability Report 2013, pp. 52 et seq. (analysis of earnings weakness; overviews).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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