On 7 January 2019, Dr Benjamin Weigert, Director General Financial Stability, presented the Bundesbank’s latest Financial Stability Review at the Representative Office in New York. Invited to and in attendance at the event were representatives from American banks and other financial institutions that focus primarily on Germany and Europe.

Dr Weigert illustrated the vulnerabilities in the German financial system that have built up during the long-lasting economic upswing over the past few years: the danger of underestimating risks, particularly in corporate and mortgage loans, as well as possible overvaluations of assets and thereby of loan collateral, for example in property financing. A sharp, unexpected economic downturn could lead to these vulnerabilities becoming exposed. The potential effects on banks and the financial system as a whole could be amplified by interest rate movements. In the event of a sharp rise in interest rates, banks that are exposed to long-term fixed interest rates in their lending business would be faced with losses, for example. They would be forced to pay higher deposit rates within a short period of time, but their interest income would increase only after a time lag. Other areas of the financial system would also be affected.

The participants and the speaker discussed the possibilities regarding how the accumulation of risk can be counteracted from a macroprudential standpoint. It was also especially informative for the American participants to hear that risks to financial stability in Germany stem not only from abroad, but that certain vulnerabilities have built up in the domestic financial system.

The presentation of the Financial Stability Review was highly successful and represents the first of several events of this kind in which Bundesbank staff present interesting work in the informal atmosphere of the New York Representative Office .

Text: Gabriele Kabelac