Claudia Buch: The Deutsche Bundesbank's 2017 Financial Stability Review

Speech by Prof Claudia Buch, Deputy President of the Deutsche Bundesbank, at the presentation of the 2017 Financial Stability Review of the Deutsche Bundesbank, Frankfurt am Main, 29 November 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

1. Introduction

Germany's economy has been expanding for eight consecutive years now.

• Enterprises and households alike can borrow cheaply, and they have accumulated comfortable capital buffers.
• Banks, meanwhile, have built up their equity capital in the years since the crisis.
• Default numbers are low; valuations in the financial markets are high.

Market participants, encouraged by the rosy macroeconomic prospects for Germany and Europe, are expecting interest rates to slowly increase again.

So there's no reason to fear for the stability of Germany's financial system, then? Assuming the economy does indeed follow its expected path, then, yes, the risks to financial stability will be limited.

But what if the economy takes an unexpected turn for the worse? How will the markets respond to an unforeseen slowdown in real economic momentum and to rates staying low for even longer? Or to the emergence of political risk and a spike in risk premiums in financial markets?