Financial stability
Bundesbank sees a bundle of risks for banks
Germany’s financial institutions are actually in a good position overall – that’s the Bundesbank’s conclusion. But the view ahead is anything but clear.
Economic slowdown, impending trade conflicts with the newly elected US President Trump, falling prices for office properties – the Bundesbank sees a whole bundle of risks for Germany’s banks. “The financial system is facing acute challenges due to geopolitical tensions and a weak economy,” said Bundesbank board member Michael Theurer at the presentation of the central bank’s 2024 financial stability report in Frankfurt.
The outcome of the presidential election in the USA is causing additional uncertainty in the already weakening German economy. Election winner Donald Trump has announced new tariffs of 10 to 20 percent on imports from Europe. This could hit Germany, an export nation, particularly hard. “Risks from geopolitical tensions remain high and can endanger the stability of the financial system,” warns Theurer. “Banks should include geopolitical risks in their scenarios and also prepare for very negative scenarios.”
The commercial real estate crisis is not over yet either. “Increased risks continue to emanate from the commercial real estate market. In our opinion, the likelihood of further falling prices is very high,” said Theurer.
Because less office space is needed due to the home office trend, the market for these properties has been under pressure in many countries for some time. A number of shops are also empty because consumers shop a lot on the Internet.
According to the Bundesbank, the financial system has coped well with the strongest interest rate increase in the past 25 years: In July 2022, the European Central Bank (ECB) ended its long-standing policy of zero and negative interest rates in order to break the wave of inflation. The central bank subsequently raised interest rates ten times in a row. The ECB has now lowered key interest rates in the euro area again.
The Bundesbank states that the German financial system has proven to be stable over the past twelve months. However, Theurer warns: “Even if the high capital ratios indicate good resilience in the banking sector, banks must remain vigilant.”
Bundesbank on the 2024 Financial Stability Report
dpa
Source: Stern
