The German Bundesbank published its Financial Stability Report 2025, concluding that risks to the German financial system have increased as the macrofinancial environment deteriorates. It points to trade and economic policy uncertainty, ongoing geopolitical tensions, and high equity and bond market valuations that could trigger abrupt price corrections and a renewed upswing in the financial cycle. Credit risks at German banks have been rising for some time and could increase further as cyclical weakness and structural challenges persist, with the non-performing loan ratio rising steadily since end-2022. The report highlights continued fragility in German commercial real estate and warns that high and rising public debt in Europe could impair debt sustainability and, through the sovereign-bank nexus and banks’ exposures to government bonds, create material spillovers to Germany; in this context, recently revised national fiscal rules are not seen as ensuring long-term sustainability or compliance with European Union fiscal rules. While regulatory capital ratios are high, low risk weights at systemically important banks could make resilience look stronger than it is in parts of the system. The Bundesbank also flags the growing importance and interconnectedness of non-bank financial intermediaries, particularly links among European funds and between funds and banks, and calls for easier cross-border access to existing data to better assess these risks. At the report’s presentation, Bundesbank board member Michael Theurer described the current macroprudential package as appropriate, comprising the countercyclical capital buffer and the sectoral systemic risk buffer for residential real estate lending; the latter was reduced in April 2025 from 2% to 1% as some housing-market vulnerabilities eased. The Bundesbank also advocated simplifying increasingly complex bank capital requirements and aims to streamline regulatory expectations for small, non-complex institutions.

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