While banks must be "credible" and have capital buffers in place that meet European regulation, they also must remain profitable and make solid earnings to prevent them from taking unnecessary risk, the German central banker responsible for financial stability told CNBC.
Andreas Dombret, member of the executive board of the Deutsche Bundesbank defended German banks, describing them as "much safer than they used to be," despite estimates from German regulator BaFin that show the nation's top lenders are 14 billion euros ($18 billion) short of the capital needed to meet incoming Basel III banking rules.
"German banks are much safer than they used to be. They have increased and improved their capital ratios, but I have to say it is important that banks have a solid base to make earnings. Profitability has become a bad word in some circles," said Dombret.
"Nevertheless banks have to earn a certain level – if they don't do that they would have to take higher risks and that is not what we want, so we are interested that there is always a certain level of earnings that makes them safer," he said.