Over the last decade, German banks have improved their resilience and built up capital. However, this capital is also counterbalanced by greater macroeconomic risk. The effects of risks on individual banks is something that supervisors keep a watchful eye on. However, an assessment of the overall risk situation needs to look at more than just individual participants or sectors in isolation.
A macroprudential, or systemic, perspective is therefore needed to complement the microprudential approach. This way, it is possible to take into account contagion mechanisms in the financial system that can give rise to systemic risks. After all, problematic developments in individual parts of the financial system can ripple out across institutions and ultimately take their toll on the real economy.