Everyone should make provisions for unexpected developments to ensure that they can still service their debt if the economic conditions worsen. Unexpected developments can happen in the home market, but they can also occur in emerging market economies or other industrial countries and then spill over to Germany.
Many mature economies are currently experiencing buoyant economic conditions, output gaps have been closed in many cases, and cyclical risks in the financial system are mounting. Financial institutions with higher levels of capital are more robust and thus also make the financial system as a whole more resilient. If all market participants have strong defences, the risk of contagion falls.