Analysis of the financial stability report: Bundesbank warns of weaknesses in the German financial system

Analysis of the financial stability report: Bundesbank warns of weaknesses in the German financial system

According to a report by www.fr.de, the Deutsche Bundesbank warns in its financial stability report about the weaknesses of the German financial system. She is particularly worried about the real estate industry. The report finds that the German financial system has remained robust despite the rapid interest rate increases, but the Bundesbank sees high vulnerabilities and believes that the interest rate turnaround has not yet fully penetrated the balance sheets of banks and insurers.

According to the Bundesbank, real estate prices in cities are overvalued by 15 to 30 percent. The monetary policy change of the European Central Bank (ECB), which gradually and unexpectedly raised interest rates, put pressure on the prices of securities that many credit institutions and insurers have on their books. Savings banks and cooperative banks in particular were affected by high securities adjustments, which ate up the previously accumulated hidden reserves.

The resulting hidden burdens could lead to problems in times of stress, as financial institutions and life insurers could hesitate to sell their securities at a loss in order to create space on their balance sheets in an emergency. The Bundesbank therefore warns that insurers in particular could fail as a stabilizing factor.

The Bundesbank also expressed concern about the real estate market, particularly in the commercial real estate sector. Due to the sharp decline in real estate prices, the securities deposited with banks are also affected. The poor economic outlook in many sectors has led the Bundesbank to fear that the risk of company bankruptcies is increasing.

In addition, the Bundesbank called on banks to use their profits to further strengthen their capital base and called on supervisory authorities to continuously develop.

Based on this information, it is expected that the financial industry will face further challenges in the coming years. Banks and insurers must prepare for a phase of adjustment and strengthening of their balance sheets. The increased interest rates and overvalued real estate prices could lead to strains that pose new challenges to the financial system. It is therefore crucial that financial institutions take the Bundesbank's warnings seriously and take appropriate measures to strengthen their resilience.