we can be tempted to underestimate the likelihood of catching the flu and neglect the need to make build up our defences. 1 macroeconomic environment the german economy is experiencing the longest period of expansion since the country ’ s reunification. this good setting is benefiting households. the positive economic situation and 1 / 5 bis central bankers'speeches sound financing conditions have contributed to the decline in the german unemployment rate. the number of consumer insolvencies has also fallen. as a consequence, household debt as a percentage of gross domestic product, at roughly 50 %, is at its lowest level in two decades. enterprises have boosted their capital from roughly 20 % to 30 % over the past two decades, and leverage in the corporate sector has receded slightly. similarly, high valuations in the financial markets reflect the strong economy and low interest rates. however, they also point to vulnerabilities in the financial system. measured relative to leverage in the corporate sector, risk premia are low – investors are thus charging a very low “ price ” for taking on risk. this is evident not just in germany, but also from an international perspective. real estate prices in germany have been rising steadily since the onset of the financial crisis, not just in urban centres. according to bundesbank estimates, real estate prices exceed levels that would be justified by fundamentals such as regional or demographic patterns by about 15 – 30 %. let me therefore give you a more detailed description of the vulnerabilities lurking in germany ’ s financial system. 2 underestimating credit risk future credit risk might be underestimated. the good situation for enterprises at present is being reflected in low provisioning at banks. this has contributed to the rise in banks ’ capital ratios. however, the risk - weighted capital ratio rose by more than the unweighted ratio. larger, systemically important financial institutions tend to have lower unweighted capital ratios than smaller banks. an economic downturn would put pressure on banks ’ capital buffers due to the ensuing credit losses and increasing risk weights. this could reverse the trend observed over the past ten years. this period has seen the average risk weights for corporate loans and in retail banking – that is to say, business with households and small and medium - sized enterprises – decline. furthermore, banks have restructured their investment portfolios towards exposures with lower risk weights. however, a glance at banks ’ credit portfolios also shows that there has been a shift in the borrower structure.

joachim wuermeling : current challenges in europe – a central banker ’ s perspective speech by prof joachim wuermeling, member of the executive board of the deutsche bundesbank, at the money marketeers of new york university, new york city, 29 march 2018. * * * 1 introduction ladies and gentlemen thank you very much for inviting me to speak to you here on wall street – any self - respecting central banker would jump at the chance to greet an audience on the world ’ s most renowned street of money and finance at least once during their career! i was fascinated to learn that wall street got its name from a protective wall built back in the 17th century, and that the new york stock exchange was founded there in the late 18th century. it ’ s remarkable that a protective wall has come to be synonymous with an open global financial centre where people from all over the world meet and do business together. despite its name, wall street has never benefited from walls. quite the opposite, in fact : it has profited from tearing down walls, from eliminating tax barricades and trade barriers. there are three topics i would like to emphasise in my speech today that all have something to do with walls : first, i would like to offer an outlook on the current political situation in germany and europe. as you all know, germany benefited tremendously – almost 30 years ago now – from a certain wall being torn down, with the help of our european and american friends. second, i would like to touch upon monetary policy and economic developments in the euro area, and i am sure that the ecb ’ s decisions on monetary policy that might be in the pipeline will have an effect on wall street. third, i would like to share a few thoughts on free trade, and on the difficulties and risks posed by walls and barriers in our globalised economies. 2 current political situation in germany and europe looking at what the media say about europe these days, you might be forgiven for thinking that the “ old continent ” is hurtling towards chaos. a headline of the new york times springs to mind, which read : “ chaos in catalonia ”. the huffington post wrote about the “ brexit chaos ”. and the washington post fears that the eu might even cease to exist : “ what the e. u. must confront if it wants to survive ”. let me assure you : the future of europe is not really on the rocks, despite what these headlines might suggest. it is