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Poorly profitable German banks searching for yield are taking increasing investment risks, in part as a result of the low interest rate environment, a Bundesbank research brief concludes, with banks becoming more risk-seeking as gross profits fall. Possible explanations include the fact that bank management remuneration is linked to performance, but liability is limited, alongside the need to meet predefined target returns in order to cover costs, which may be more difficult in a low interest rate environment.
"We have to be able to tackle what is, I believe, too much risk taking because banks are looking for yield, be it on traditional credit risk or on market finance, such as leveraged finance," ECB Banking Supervisory Board member Edouard Fernandes-Bollo told MNI in an interview this week