they set up an appropriate risk management system that takes account of solvency ii. at the same time, the advance of insurers is intensifying competition in these markets, and this, too, is transforming the environment in which banks operate. 4. german real estate market gaining momentum in a low - interest rate environment, developments on germany ’ s real estate markets warrant particular attention. the real estate loan is a heavyweight element of financial stability. real estate loans make up over two - thirds of households ’ debt. conversely, they account for 40 % of total domestic lending ; in the case of savings banks and credit cooperatives, this share is as high as around one half. residential property prices are rising at an accelerated pace in urban areas. the observed set usually comprises a group of seven large cities : berlin, cologne, dusseldorf, frankfurt am main, hamburg, munich and stuttgart. in 2011, prices rose by over 9 % on average for new residential property in these cities and by 7 % for pre - owned property. the upward trend appears to have continued in the first half of 2012. this is shown in a narrower definition which comprises only owner - occupied dwellings. prices in this segment are expected to rise by an average of around 11 % this year, and thus even somewhat more sharply than last year, when they went up by just over 8 %. special factors are also at play here. savers are increasingly channelling their funds into forms of investment which they view as a hedge against monetary and exchange rate instability. price exaggerations therefore cannot be ruled out in individual regional market segments. all the same, there are no signs yet of a rapid build - up of risks to financial stability in germany. the guideposts are : bis central bankers ’ speeches • first, households ’ robust debt sustainability ; their debt in relation to disposable income has been on the decline for years. • second, the moderate growth in loans ; housing loans rose by only 1. 2 % last year. • third, the conservative terms of housing lending in germany with longer interest fixation periods and limited debt financing shares. however, the mortgage lending of regional credit institutions is showing a tendency towards local concentration. 5. shadow banking system : small in germany, but globally active the search for additional risk factors which contributed to the financial crisis inevitably leads us to the shadow banking system, which, as we know, played a major role in the spill - over of the subprime exaggerations

##s of the economic process, resulting in misallocations and expensive avoidance strategies. it is mainly the economically weaker groups in society which suffer from that - those who are unable to evade the creeping erosion of money. those groups mainly include the recipients of wages, pensions and government transfer payments, as well as those who hold savings accounts. the safeguarding of stable money is thus also, at the same time, enlightened social policy. ludwig erhard made the same point as follows : “ the social market economy is unthinkable without a consistent policy of price stability. only such a policy also guarantees that individual groups in society do not enrich themselves at the expense of others. ” 3 that is one of the major reasons why price stability has played such an important role in post - war west german history. maintaining the stability of the d - mark was, and has always been, an aim of german policy during the past 50 years. iii it is for good reason that enduring stability is now also the aim and yardstick for the new european currency, the euro. for that purpose, a regulatory framework that is binding in international law was laid down in the1992 maastricht treaty. the mandate to maintain price stability has been assigned as its primary objective to the european system of central banks ( escb ), which is independent of political instructions. the escb has been equipped with all the powers and instruments needed to pursue an effective monetary policy. at the same time, the escb is prohibited from any monetary financing of public - sector budgets. this means that a regulatory framework - precisely as called for by ordo - liberalism - has been put in place, with which - in the light of all past monetary policy experience - it may indeed be possible to safeguard stable money on a lasting basis. happily, the euro was launched at that start of this year in a setting characterised by a high degree of price stability in all the participating countries. at all events, their inflation rates were - and remain at an all - time low. the same applies to their long and short - term interest rates. l. erhard : wohlstand fur alle, dusseldorf, vienna 1964, p. 15 at the beginning of april, in fact, the governing council of the ecb - in line with it stability - policy orientation - made a further cut in official interest rates. the reason for this was that the monetary data and the price outlook continue to suggest a high degree of