Bundesbank’s Targeted Review of the design of lending standards in the LSI environment

Background

A large number of LSI credit institutions have been asked by the Bundesbank’s ongoing supervisory authority to take part in a so-called targeted review. In this process, the institutions are informed that they form part of a sample for a structured survey on the design of lending standards in the LSI sector.

The aim of the measure is therefore to record and analyse institution-specific lending standards, taking into account the respective size, the specific business and competitive environment, the respective business and risk strategies, and the operational processes. Subsequently, the findings are to be aggregated across all participating institutions to identify ‘good and bad practices’ in the application of lending standards.

The targeted review comprises a qualitative and a quantitative component. For the qualitative component, institutions are asked to provide documents and to complete and submit a questionnaire. No separate data was requested from the selected institutions for the quantitative analysis. It can therefore be assumed that this will be based on regulatory reporting data.

Regulatory classification

The targeted review is neither a regulatory measure based on an administrative act nor a preliminary step towards such an act. Rather, it is a means of structured information gathering, as has already become established in the context of ECB supervision. For instance, as part of its banking supervision, the ECB regularly conducts targeted reviews or campaigns to ensure the stability of the financial system and to assess risks at the significant institutions in the euro area that it supervises directly. In summary, they are therefore instruments of qualified data collection within the framework of supervisory activities.

This makes it clear that targeted reviews are not, at first instance, an element of microprudential banking supervision (= “individual supervision of individual institutions”), but rather fall under the macroprudential supervisory mechanism (= “stability of the financial system”). Macroprudential supervision aims to limit systemic risks and strengthen the resilience of the financial system in a preventive manner. The central body for macroprudential oversight in Germany is the Financial Stability Committee (AFS).

In this respect, the present Targeted Review on the design of lending standards is also consistent with BaFin’s risk analysis and the activities derived from it, as published under “Risks in Focus 2026” at the beginning of the year.¹

Objective

Why have lending standards now become a focus of regulatory interest?

Lending standards serve to objectify the basis for a lending decision, i.e. to define the conditions under which, in the institution’s assessment, granting a loan is justifiable or not. The focus is on the assessment criteria for evaluating the borrower’s creditworthiness, in particular their financial capacity to service the debt on a sustainable basis. In this respect, lending standards represent the institution’s written commitment to granting a loan and, consequently, to the extent of the risk it is prepared to assume.

The key reference point here is BTO 1.2.1 loan origination of the MaRisk, which has taken on particular significance following the 7th amendment to the MaRisk and the references to the specific sections of 5.2 Assessment of borrower’s creditworthiness in the EBA Guidelines on loan origination and monitoring.

In this respect, the Bundesbank’s aim with the targeted review is to achieve greater transparency regarding institutions’ willingness to assume risk and to be able to identify and assess any resulting systemic risks.

A parallel can be drawn here with the “Data collection on housing loans” (WIFSta): The WIFSta, as an instrument for structured data collection on residential property financing, has its origins in the inclusion of macroprudential instruments in Section 48u of the German Banking Act (KWG) in 2017. This, in turn, stemmed from the German Financial Stability Committee (AFS), which had already highlighted the risk of a bubble forming in the area of property financing at that time. The AFS itself now uses the data obtained from the WIFSta for macroprudential risk assessment, as it announced as recently as 11 May 2026.²

Implications for participating institutions

As the targeted review, as described, is a tool for identifying and assessing systemic risks across the financial sector as a whole, individual institutions are not, in themselves, the primary focus. Nevertheless, it is inevitable that each institution concerned will also disclose information regarding its lending standards and its individual appetite for risk.