Overview
- The Bundesbank finds the German financial system broadly resilient but warns that overall risks are elevated because several pressures are interacting across banks, insurers and funds.
- Bank credit risk is growing as the share of problem loans has risen and new residential lending shows high leverage with nearly 40% of new loans above 90% loan‑to‑value and about 11% exceeding property value.
- Market valuations, especially in US technology stocks, remain high and create significant downside risk that could tighten corporate financing and transmit losses to financial institutions.
- Rising sovereign debt in the euro area is described as toxic because weaker growth and higher borrowing costs could push up bond risk premia and strain banks, insurers and funds holding those bonds.
- The Bundesbank highlights greater links between funds, banks and private‑credit vehicles plus AI‑related cyber threats and calls for usable capital buffers, better European data sharing and targeted macroprudential tools to protect households and market liquidity.