counterparties. suitable recovery and resolution regimes for central counterparties need to be established. we must not allow new systemic risks to build up at central counterparties and make us vulnerable. what needs to be done? in conclusion, let us look at the most important tasks facing us in terms of safeguarding financial stability. one major risk factor is the european debt crisis and the risks of contagion it entails. the debt crisis is far from being over. how could it be otherwise? the underlying imbalances built up over a long period of time, and correcting them will therefore also be a long process. it is important that economic policy - makers in the euro area continue with the consolidation and reform process they have embarked on. monetary policy can only buy time. it is our firm conviction that monetary policy needs to be returned to its core task : the safeguarding of price stability. the ties between governments and the domestic banking sector have actually tightened in some countries this year. the preferential regulatory treatment of government bonds on banks ’ balance sheets must therefore be phased out in the medium term. the other major risk factor is the low - interest - rate environment. everyone should be factoring into their risk assessments the normalisation of the level of interest rates and the potential for rising volatility on the financial markets. as i have explained, risks to financial stability as a result of low interest rates often emanate from the property market. experience in other countries has shown that a prolonged period of low interest rates can result in price bubbles. the low interest rates are eating away at insurers ’ financial buffers. they need to build up their capital resources and review their level of distributions. efforts should be made to create bis central bankers ’ speeches a sound and sustainable regulatory framework for policyholders ’ participation in the valuation reserves. finally, the new macroprudential tools need to be prepared for practical application. that is because the longer the period of low interest rates lasts, the more likely it is that macroprudential instruments will be employed. one thing is certain : as soon as we see a risk to financial stability, we will act. bis central bankers ’ speeches

cologne, dusseldorf, frankfurt am main, hamburg, munich and stuttgart – residential property prices climbed by almost a quarter overall between 2009 and 2012 – compared with a rise of just under 5 % between 2005 and 2008. for 2013 we are expecting a further price rise of around 9 %. the bundesbank is currently assuming that housing is overvalued in the major cities by up to 20 %. low interest rates have without doubt created incentives for property investments which would not have been undertaken under normal interest rates. in germany as a whole, the upward trend is continuing, though at a significantly lower level. housing prices across germany actually fell by 1 % between 2005 and 2008. between 2009 and 2012 they then rose by more than 8 % overall, and by 3 % to 4 % in the first half of 2013. bis central bankers ’ speeches from the point of view of financial stability, however, it is not just the change in the price of residential property which matters. the interplay with lending is crucial. in view of households ’ sound levels of debt sustainability and a moderate rate of growth in property lending, currently 2. 2 %, rising property prices do not at present harbour any excessive risks to financial stability. however, the possibility that property buyers, particularly in major cities, could experience wealth losses due to potential price corrections cannot be ruled out. we will therefore continue to monitor the situation on the german housing market closely. surveys are currently being conducted at banks aimed at providing us with a more in - depth insight into the financing of residential property. germany ’ s banks should ensure that they apply conservative standards when issuing property loans. central counterparties gaining in importance close and opaque ties in the over - the - counter derivatives markets are a potential source of danger to the stability of the financial system. the regulation of otc derivatives markets sets great store by central counterparties. they bear the default risks. if a major market participant defaults, the use of central counterparties is intended to lessen the shock waves, thus acting as a kind of breakwater. it is therefore a positive development that ever greater use is being made of central counterparties for clearing. in the case of new index credit default swaps arranged between major derivatives traders, more than half are now being cleared through central counterparties. however, it should not be forgotten that the central counterparties have been assigned a systemically important role. this requires safety barriers. attention should be given to ensuring strict requirements globally for risk management at central