sufficiently into market valuations. if we look at the risk premiums on corporate bonds, we come to a similar conclusion : these, too, currently do not seem to be sufficiently reflecting the actual risks – measured here in terms of default rates. developments in the german corporate sector are departing from these global trends to some extent. gross domestic product ( gdp ) is forecast to grow by 1. 7 % in 2016, which is higher than the country ’ s potential growth rate. 2 insolvency ratios are at an all - time low. credit risks from domestic business on german banks ’ balance sheets are commensurately low. at the same time, liquidity risk and interest rate risk are mounting. mr dombret will go into more detail on this shortly. if assets are mispriced, there is a risk of an abrupt correction. the severity of the consequences of such a correction correlates with high debt. debt trends and levels vary considerably between sectors and regions : across the globe, sovereign debt has risen since the crisis. corporate debt has risen dynamically over the same period, especially in the emerging economies. household debt here has risen, too, albeit from a low initial level. whereas households in the united states have deleveraged, household debt in europe has fallen only slightly. germany has also been seeing a trend decline in household debt, which currently stands at 53 % of gdp. the bulk of this debt – around 70 % – is for loans for house purchase. 3. low interest rates can fuel a credit - financed real - estate boom. loans for house purchase not only make up a major portion of household debt. they are also significant for banks, as they make up around 50 % of lending to domestic households and firms. at the same time, international experience has shown that credit - driven real - estate market 2 / 4 bis central bankers'speeches overvaluation – depending on the structural situations in those markets – has often triggered systemic financial crises. it is for this reason that our macroprudential oversight pays particular attention to the german real - estate market. our first step is to identify the target : to reduce the likelihood and extent of future crisis - like developments. the earlier we can detect distress, the earlier every individual player can take countermeasures – by adjusting contractual terms appropriately or by building up risk buffers. in a second step, the appropriate indicators have to be identified. risks to financial stability can arise if a sharp rise in

that losses from unforeseen events can also be cushioned. the larger the risk buffers in the financial system themselves, the lesser the contagion effects and self - reinforcing mechanisms that are set in motion whenever unexpected events occur. an adequate capital ratio thus will not weigh on financial institutions and the economy but is instead a precondition for enabling financial markets to perform their function for the real economy and to promote real economic growth. better capitalised banks are more competitive and tend to grant more loans. 1. key statements of the financial stability review against this background, allow me to summarise the key statements of our report. 1. in the current macroeconomic setting, there is a danger of risks being underestimated. low interest rates, low risk premiums and high valuation levels are affecting all sectors of the economy – firms, households and general government. the incentive is there to amass 1 / 4 bis central bankers'speeches more debt. this increases vulnerability to future changes in prices or interest rates. 2. the current macroeconomic setting can favour a credit - financed real - estate boom. prices are rising in the german real - estate sector, and lending is on the rise. however, there are no acute signs of an easing of credit standards. preventive measures can mitigate future risks, though. 3. risks are accumulating in financial institutions ’ balance sheets. the amount of low - interest long - term loans is rising, while the share of low - yielding assets has increased. this is leading to increased liquidity and interest rate risks. persistently low interest rates would hit precisely those financial institutions whose business models depend heavily on interest rates. 2. in the current macroeconomic setting, there is a danger of risks being underestimated. low interest rates are not a new phenomenon. a trend towards falling nominal and real interest rates has already been visible since the 1980s. this reflects weak aggregate productivity growth, the real economic fallout from the financial crisis and the attendant low inflation. a decisive factor in the stability of the financial markets is whether yields adequately reflect the underlying risks. there are signs that risk premiums are too low – thus providing an incentive to take excessive risks. firms ’ profits are a reflection of the weak global real economic growth. by comparison, equity market valuations in europe are currently close to, and those in the united states above, their average over the past 10 years. firms ’ weak profitability therefore does not seem to be feeding