Thirteenth AFS Report on Financial Stability in Germany – Geopolitical Tensions Increase Uncertainty for the Financial System

July 1, 2026

Thirteenth AFS Report on Financial Stability in Germany – Geopolitical Tensions Increase Uncertainty for the Financial System

The Financial Stability Committee (AFS) presents its thirteenth report to the German Bundestag for the reporting period from April 1, 2025, to March 31, 2026. The AFS addressed the development of the risk situation and resilience in the German financial system, as well as the appropriateness of the macroprudential policy package. Among other things, potential risks to financial stability from the real estate and corporate sectors, as well as the non-bank financial sector, were discussed in more detail. In addition, the AFS dealt with geopolitical risks, cyber risks, and risks arising from high public debt in some countries. Possible risks from the use of artificial intelligence and from stablecoins were also discussed in the AFS.

The macro-financial environment during the reporting period was characterized by high economic and geopolitical uncertainty. Against this backdrop and due to structural challenges, the German economy recorded only low growth. Despite temporary price declines in equity markets, valuation levels remained high. The German banking sector proved resilient and achieved solid profits. Non-bank financial intermediaries (NBFI) in Germany also showed overall robustness. Liquidity risks increased for open-ended real estate funds. The situation in the commercial real estate sector remained tense. Overall, vulnerabilities in the residential real estate market continued to decrease. However, the AFS sees potential new risks given a relatively high proportion of new residential real estate loans with high debt-to-income ratios. The Committee will continue to analyze developments.

“The German financial system has proven stable overall – banks showed resilience in an environment characterized by high uncertainty. The economic consequences of the Iran conflict are difficult to assess. In the event of unfavorable developments in energy prices and growth, credit risks in the banking sector, particularly in the corporate sector, could increase. Financial market participants should strengthen their resilience to cyber risks and hybrid threats. We will continue to monitor developments closely.”

© Alexandra Lechner

Theurer, Michael

Michael

Theurer

Member of the Executive Board of the Deutsche Bundesbank

The current risk situation in the German financial system is significantly shaped by the economic consequences of the Iran conflict and high uncertainty. The economic recovery originally expected for 2026 is likely to be weaker as a result of the conflict. High energy prices and weaker growth expectations pose the risk of economic stagnation with simultaneously rising inflation. In an unfavorable scenario, credit risks in the banking sector could noticeably increase. Corporate loans would be particularly affected by this. The consequences of the Iran conflict and the uncertain economic outlook are increasingly burdening German companies. Advances in artificial intelligence combined with increasing geopolitical tensions and hybrid threats increase risks for the financial system, e.g., through cyberattacks.

The current risk environment and high uncertainty underscore the need to preserve the resilience of the German financial system. The macroprudential policy package of the Federal Financial Supervisory Authority (Bafin) makes an important contribution to this. The policy package consists of the countercyclical capital buffer of 0.75% of domestic risk exposures and the sectoral systemic risk buffer on residential real estate-backed loans of 1.0%. The AFS considers both buffers appropriate. The AFS will continue to monitor and evaluate developments. If necessary, the AFS can recommend flexibly adjusting the measures to a changed risk situation. The member institutions of the AFS also continuously examine whether further measures need to be taken to maintain financial stability.