level of the individual group entities. in this context, the federal council has announced that, during the first half of 2019, it will decide on the corresponding requirements for the highest operating unit of the big banks – i. e. the parent entity. third, credit suisse and ubs must further reduce the financial and operational dependencies within the group. domestically focused banks i would now like to turn to the domestically focused banks. here too, there has been little change since the financial stability report was published in june. mortgage and real estate markets remain the biggest source of risk. i would like to make two observations in this connection. first, the imbalances on the mortgage and real estate markets persist. both mortgage lending and prices for single - family homes and privately owned apartments have continued to rise at a moderate rate over recent months. and while prices for residential investment property have not increased any further, the risk of a price correction in this segment is particularly high. the renewed increase in vacancy rates indicates that the robust activity in rental apartment construction may have led to oversupply, exerting downward pressure on rental income and, in turn, on the prices of these properties. at the same time, initial yields on residential investment property, in other words the ratio of rental returns to transaction prices, are at historically low levels. in the event of an interest rate rise, initial yields on investment properties will also have to increase upon a change of ownership. this would place additional pressure on prices. second, the risk appetite of domestically focused banks remains high. this is partly due to the fact that interest rate margins of these banks fell further in the first half of 2018. as long as this pressure on margins persists, incentives for domestically focused banks to increase risktaking will remain substantial. the high risk appetite of the domestically focused banks is, for instance, evident from the fact that mortgage lending growth at these banks continued at a robust 4 %, whereas the market as a whole saw growth of around 3 %. at the same time, affordability risks, which these banks take on when granting new mortgage loans to finance residential investment properties, have risen once again over the course of the year. since many of these loans also carry considerable loan - to - value ( ltv ) risk, they would be particularly vulnerable in the case of a sharp increase in interest rates and a correction in real estate prices. page 2 / 3 berne, 13 december 2018 fritz zurbrugg news conference it is

is already fading from collective memory. given the deceptive tranquillity in the financial markets, we are at risk of forgetting what the crisis has taught us about public finances. but that would have dire consequences. as i emphasised in my opening remarks yesterday, the markets do anticipate that reforms will be finalised and that public budgets will be consolidated. thus, any doubts over the sustainability of public finances can send huge shockwaves across the euro area. in addition, mountains of private and public debt block the way towards sustainable economic growth. and on a side note : at this stage of integration in the euro area, euro - bonds would not be the right path to choose as they would weaken the incentives for prudent fiscal policy. nevertheless, to me, the recent debate about the stability and growth pact shows something else. it seems that there is an expectation that, in the end, monetary policy will provide the bis central bankers ’ speeches ultimate backstop. this expectation, however, is dangerous and cannot be the guideline for policy action – or rather inaction. monetary policy certainly helped prevent the crisis from escalating. still, there is one thing we should be clear about : monetary policy cannot solve the underlying causes of the crisis. it can only buy time. and it is up to national governments to use that time to dig out the root causes of the crisis. failing to do so will push us back into dangerous territory. we must not let that happen. 4. conclusion ladies and gentlemen i have presented what i consider to be good news. the german economy is gaining in strength and the euro area has embarked on the path to recovery. nevertheless, we should keep in mind, what the irish horse racing jockey tony mccoy said : “ there is no place for arrogance or complacency in racing because you are up there one minute and on your backside the next ”. keeping up economically is certainly a race and we should avoid the risk of landing on our backside. thus, my warning : beware complacency. as a final point, let me emphasise that i have very much enjoyed attending this seminar. it has certainly helped strengthen the ties between the central bank of the republic of turkey and the deutsche bundesbank. personally, i am looking forward to more visits next year when turkey assumes the g20 presidency. thank you very much. bis central bankers ’ speeches