# Key messages

**Key messages on the risk situation**
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**Trade policy conflicts** and **persistent geopolitical tensions** increased the risks to financial stability in the past year. Structural challenges are weighing on the German economy and could affect financial stability going forward. Despite these developments, **valuation levels in equity and bond markets are significantly elevated.** This has increased the risk of abrupt market price corrections. Additional risks to financial stability in Germany arise from high and rising government debt ratios in some euro area countries. {#par-a53e58}

**Risks from German banks' lending business** are on the rise against a backdrop of cyclical and structural challenges. Risks in the commercial real estate sector contrast with fairly moderate vulnerabilities in the housing sector. **Banks' capitalisation** is sound overall. But it would be a mistake to overestimate the resilience of large banks in particular because of low risk weights.{#par-iie1u5}

The growing importance of **non-bank financial intermediaries**()and their **interconnectedness** with both their peers and the banking system is a challenge to the macroprudential oversight of the financial system. In addition, novel risks resulting from **financial innovations** like stablecoins, and advances in digitalisation driven notably by artificial intelligence (), need to be monitored closely.{#par-u9iou1}

**Policy implications**
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The **package of macroprudential measures** is appropriate in light of the challenging macro-financial environment, mounting risks, and lingering vulnerabilities in the banking sector.{#par-e9318e}

To tackle the increasing complexity of banking regulation, the **regulatory regime will have to be simplified**, but the resilience of the financial system has to be preserved at the same time. To advance this initiative, the Bundesbank has introduced proposals on a small banking regime and on simplifying microprudential and macroprudential capital requirements into national and European discussions.{#par-o372i3}

To be better equipped to assess risks from the sector and its growing interconnectedness, including with the banking system, it will be necessary to do more to **share previously collected data at the international level**.

*[**NBFIs**]: non-bank financial intermediaries
*[NBFI]: non-bank financial intermediaries
*[AI]: artificial intelligence