Under the Financial Stability Act (Finanzstabilitätsgesetz), the Bundesbank has a mandate to monitor the stability of the German financial system. It is tasked with identifying and assessing risks to financial stability. The Bundesbank understands financial stability as a state in which the financial system is able to fulfil its economic functions at all times. The financial system comprises financial intermediaries, securities markets and market infrastructures. In its annual Financial Stability Review, the Bundesbank documents relevant developments and vulnerabilities in the German financial system and also highlights risks to its stability.

The functional viability of the financial system is of vital importance for the economy. The financial system is where credit is provided and savings are invested; it enables risks to be hedged and facilitates payments. Unforeseeable events can jeopardise the stability of the financial system. The financial system should neither cause nor excessively amplify a downturn in overall economic activity. For this reason, the financial system needs to be sufficiently resilient – that is, capable of cushioning unexpected, abrupt changes rather than amplifying them.

The focus is on systemic risks that could jeopardise the stability of the financial system. For instance, if one or more market participants were to encounter distress, this could endanger the functioning of the entire system. This may be the case if market participants are very large or closely interconnected with other actors. Interconnectedness may be a channel through which adverse developments are transmitted to the financial system as a whole, impairing its stability. In addition, systemic risks can arise if a large number of market participants are exposed to similar risks or risks that are closely correlated with one another.

The Bundesbank also contributes its analytical findings to the work of the German Financial Stability Committee, the central body for macroprudential oversight in Germany. It provides the Committee with its assessment of the general risk situation. If the Bundesbank identifies systemic risks, it can make proposals to the Committee for warnings and recommendations to counter these risks. Afterwards, it evaluates the extent to which the recommendations were implemented.

The Bundesbank brings analyses and perspectives to bear at the European and global levels as well. The Bank addresses its primary topics in European and global bodies such as the European Systemic Risk Board (ESRB

This Financial Stability Review takes account of developments up to 18 November 2024.