This means that susceptibility to an escalation in the European sovereign debt crisis remains a high risk for the German banking sector. The German institutions have also rendered their balance sheets less vulnerable by scaling down known toxic assets. In the past two years, the 12 large German institutions have cut back their exposure to these asset-backed securities by 30% to around € billion.
However, the securities still present a latent risk if their rating structure should deteriorate. If the banks are to build further on the stabilisation they have already achieved, then an adequate earnings situation is of central importance.