andreas dombret : the risk situation in the german financial system opening statement by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the unveiling of the deutsche bundesbank ’ s financial stability review, frankfurt am main, 25 november 2014. * 1. * * introduction ladies and gentlemen i am delighted to present the 2014 financial stability review, which i am doing for the first time together with deputy president professor buch. this press conference also marks a personal first for me, as, in this context, it is my first in my new role as the executive board member responsible for banking supervision. in addition to my previous experience in the private sector, my move from the field of financial stability to banking supervision in may 2014 means that i can see things from many different perspectives – something for which i am thankful. and we have another premiere : this is the first financial stability review to be published since the single supervisory mechanism ( ssm ) was launched. under the new european supervisory structure, the ecb assumed direct supervision of the 120 most significant euroarea banks on 4 november. ms buch has already discussed many important aspects of the financial stability review, which i will now expand upon by taking a look at the current risk situation of the german banking sector. 2. german banks under the new supervisory structure the comprehensive assessment began just one year ago. this involved subjecting the major german institutions to closer scrutiny and testing their ability to withstand stress in a crisis situation. the objective was to create transparency and to detect any legacy problems and capital shortfalls. elke konig, president of bafin, and i gave a detailed account of the results back at the end of october. you will recall that 24 of the 25 german institutions that participated in the comprehensive assessment passed, with the only bank to fail having already closed the capital shortfall identified in the comprehensive assessment. from a german perspective, we can therefore state that the ecb ’ s prelude to the ssm in the form of the comprehensive assessment was an overall success. much the same as a play or an opera, however, it takes more than one successful overture to secure a bank ’ s long - term success. therefore, banks cannot afford to rest on their laurels based on this positive outcome, as several banks barely cleared the 5. 5 % capital hurdle in the stress test ’ s adverse scenario. furthermore, five german banks would not have passed the stress test if it had been

a large part responsible for the problems we are facing today. in particular, i will illustrate how those member states whose competitiveness has deteriorated substantially since monetary union have not managed to take advantage of it. second, i will describe germany ’ s economic performance during the crisis and the recovery. in particular, i will show how germany served as an import buffer during the economic downturn that followed the financial crisis. now that many countries are struggling with recovery, the more dynamic upswing in germany is providing an important impetus to the rest of europe. finally, i will turn to the challenges that the european sovereign debt crisis is posing to germany. considering that germany is providing a large part of the fiscal contributions to euro area countries with refinancing problems, confidence in germany ’ s solvency is vitally important in the current situation. germany therefore bis central bankers ’ speeches has to set an example for implementing sound fiscal policies within the euro area. however, this alone will not be sufficient to resolve the sovereign debt crisis. to secure long - run stability within emu, significantly stronger incentives for sound public finances are indispensible. 2. intra - emu divergences what critics actually have in mind when they talk about germany ’ s export strength is the existence of current account surpluses which contrast with current account deficits in other emu member states or other countries around the world. i would like to emphasise that neither current account surpluses nor current account deficits are a bad thing per se. current account surpluses reflect net foreign lending and current account deficits net foreign borrowing, and depending on the circumstances, both can be appropriate for a given country. for a country with a declining working - age population, for example, it is quite reasonable for residents to save money for the future and to invest a share of it abroad. by compensating for a shrinking income in the future, the money saved today allows consumption to be smoothed over time. conversely, countries which are undergoing a catch - up process and need financing for the investments might be willing and promising borrowers of foreign funds. consequently, for a proper assessment we have to take a closer look at the underlying drivers of current account surpluses in some euro - area countries and of current account deficits in others. one worrying development is that divergences in current account balances have mostly gone hand in hand with divergences in price competitiveness. whereas germany, as a surplus country, has been able to improve