Given its public mandate to safeguard monetary stability, the Bundesbank has an inherent interest in ensuring a stable financial system. As an integral part of the European System of Central Banks, it also has an explicit mandate to contribute to financial stability.

The February 2020 edition of the Monthly Report comments on the economic situation in Germany in winter 2019/2020.

Risks to the German financial system are clearly on the increase – main challenges lie in the worsening and widening sovereign debt crisis and the associated loss of confidence in the European banking system.

Given the upbeat prospects for the economy as a whole, there is little risk to the stability of the German financial system at present. Yet with interest rates sitting at low levels for years now and the economy in such robust shape, there is a danger that market participants might underestimate the risks to financial stability, the Bundesbank cautions.

Times of strong growth and low interest rates have seen vulnerabilities build up in the German financial system. In addition, the probability of an economic downturn has increased.