andreas dombret : deutsche bundesbank ’ s 2012 financial stability review – the risks to the german financial system speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the presentation of the deutsche bundesbank ’ s financial stability review 2012 “ the risks to the german financial system ”, frankfurt am main, 14 november 2012. * 1. * * risks : an overview the risks to the german financial system remain high. for a number of years now, we have seen the risk situation being shaped by the development of the financial and debt crisis. i do not expect these factors to decouple in the near future. that is why the european sovereign debt crisis remains the greatest threat to financial stability in germany. at the same time, the risk map will need to be redrawn, as monetary and fiscal policy measures on a massive scale were needed to stabilise the financial system. this has entailed an ever greater transfer of risk to the public sector and has caused the low - interest rate environment to become entrenched. the side - effects of short - term stabilisation measures can leave a difficult legacy for financial stability in the medium to long term. that is why we need to make a distinction between acute risks and medium - term risks. acute risks are like a rear - view mirror in which the financial and sovereign debt crisis is visible. acute risks are located primarily in the legacy portfolios of asset - backed securities and sovereign risk in the context of the sovereign debt crisis. medium - term risks, meanwhile, require us to look ahead and consider what might be around the next corner. preventive macroprudential oversight has to take medium - term risk factors very seriously. its task is to promptly identify potentially unhealthy developments that might unfold and endanger financial stability in the future. today, we can see a growing number of the risk factors that played a role in the run - up to the financial crisis. the financial stability review 2012 addresses three topics : • first, the entrenched low - interest rate environment. this is spurring the search for yield. • second, real estate prices. these are showing accelerated growth in germany ’ s urban centres. the experiences of other countries show that precisely such an environment of low interest rates and high liquidity can encourage exaggerations on the real estate markets. and this can pose a considerable threat to financial stability. • lastly, the global shadow banking

7. necessary measures : what needs to be done? our financial stability review, however, seeks not just to identify risks, but also points out the measures that need to be taken to safeguard the stability of the financial system over the medium to long term. german credit institutions can contribute greatly to protecting themselves, and the financial system, against the build - up of risk via the real estate market. it is essential that they maintain the conservative terms of real estate loans. the report also refers to the foreseeable medium to long - term challenges to banks and their earnings. above all, they should not attempt to take advantage of the low - interest rate environment in order to delay the clean - up of bank balance sheets. in the low - interest rate environment, german insurers naturally need to continue to make provisions in order to sustain guaranteed returns in future as well. policymakers, too, have to contribute to financial stability. the major policy decisions – where push comes to shove, so to speak – have to be the right ones ; therefore, • monetary policy should not be overburdened, • the reform course should be continued in europe • and the ability of the banking union to function should be ensured – before the transfer of competencies to the european level. in addition, financial market reform needs to be given an additional boost. • the shadow banking system must be broadly identified. • attention should be paid to the coherence and cumulative impact of financial market regulation. • international implementation of derivatives market regulation must be expedited. • and – very importantly – credible resolution regimes need to be introduced in order to bring the “ too big to fail ” problem under control once and for all. bis central bankers ’ speeches