Bundesbank: Risks to financial stability remain elevated

What happened

On 12.11.2026 the Deutsche Bundesbank unveiled its Financial Stability Review 2026. The Review finds the German financial system is resilient but operating in an environment of geopolitical tension. It highlights increased risks from high valuations in the financial markets, rising credit risk, real estate financing vulnerabilities, high government debt and the growing importance of private credit. In addition, the Review says artificial intelligence and hybrid threats increase the risk of cyber attacks on critical financial services. Michael Theurer, Member of the Executive Board of the Deutsche Bundesbank, said the times are challenging and look set to remain so and that sufficient resilience and usable capital buffers are needed.

Key risks identified

The Review sets out several specific risk areas. Financial market valuations are described as ambitious, especially in the US tech sector, with equity and corporate bonds valued highly and low risk premia, leaving markets vulnerable to negative surprises. Rising government debt combined with weak growth, higher funding costs and expanding government expenditure is said to weigh on debt sustainability; banks in Europe face risks from high sovereign exposures. For German banks, the Review notes rising credit risk, an increase in non-performing loans since the middle of last year and continued strong net interest income and sound capital and liquidity positions. In real estate, almost 40% of new residential lending in Q2 2026 had loan-to-value ratios above 90% and for almost 11% the loan amount exceeded property value. Commercial real estate non-performing loans have continued to rise and transaction volumes are low. Non-bank financial intermediaries, especially funds, have seen increasing outflows since mid-2023 and greater interconnectedness and opacity in private credit are flagged as vulnerabilities.

Resilience and policy implications set out in the Review

The Review says banks, insurance corporations and funds have so far coped well with burdens, but stresses the importance of institutions' risk provisioning as credit risk rises. It notes that the countercyclical capital buffer and the sectoral systemic risk buffer for loans secured by residential real estate strengthen banks' loss-absorption capacity and that existing macroprudential capital buffer requirements remain appropriate. Theurer emphasised that capital buffers need to be usable in a stress event and called for simplification of the regulatory framework to increase buffer effectiveness. For non-bank intermediaries the Review advocates better data exchange in Europe, stronger reporting in less transparent segments such as private credit, and a flexible toolkit to limit systemic liquidity risks surrounding investment funds.