We noted in our Financial Stability Review from last November that vulnerabilities are continuing to build up in the German financial system: [1]  • After ten very good years for the economy, there is a risk that future credit risks could be underestimated. • The recoverability of collateral, such as in the real estate financing segment, might be overestimated.
• All this is topped off by interest rate risk – both rates that abruptly spike higher and rates that stay very low for very long can be a burden for Germany’s financial system. Where exactly market rates will end up will be dictated primarily by the long-term growth prospects, and thus by factors which lie beyond the reach of monetary policymakers.