High valuations and rising credit risks test German finance
Germany's financial system remains resilient, but the Deutsche Bundesbank's 2026 Financial Stability Report flags market, credit, property and sovereign debt risks. Artificial intelligence and hybrid threats increase cyber risks to critical financial services.
Strong banks face mounting exposures
Bundesbank Executive Board member Michael Theurer called for usable capital buffers and sovereign exposure limits or concentration-based capital charges.
Banks retain strong net interest income, capital and liquidity, but weak corporate earnings, financing costs and insolvencies raise credit risks.
Non-performing loan shares have risen since mid-2025.
Low risk weights and partly unusable buffers constrain systemic banks' loss absorption.
In Q2 2026, almost 40 percent of new housing loan volume had loan-to-value ratios above 90 percent; almost 11 percent exceeded property values.
Many borrowers devote high income shares to debt service.
Rising public debt, weak growth, refinancing costs, demographic pressures and defense spending constrain governments' fiscal room.
Funds connect the pressure points
High equity and corporate bond valuations, notably in US technology, coexist with low risk premiums.
The Bundesbank warns that corrections can spread and tighten corporate financing.
Commercial property faces rising bad loans, thin trading and price risks from higher rates or fund sales.
German open-ended property funds have faced outflows since mid-2023; some restricted or suspended redemptions.
Links among funds, banks, insurers and pension institutions transmit losses and liquidity stress.
Private credit is growing, increasingly interconnected and opaque.
Buffers must be usable
The Bundesbank considers existing countercyclical and residential property capital buffer requirements appropriate.
Theurer calls for simpler rules that make buffers usable under stress, alongside adequate provisioning.
For funds, he urges better European data exchange, private-credit reporting and flexible liquidity-risk tools.