Bundesbank warns of increased risks for the German financial system

It is a kind of thermometer for the banking industry: every year the Bundesbank in Frankfurt provides information about the state of the German financial system - in the new financial stability report. And finally, you could say, the temperature has risen a little.

According to the Bundesbank, there are increased risks for German finance. Compared to previous years, the dangers have actually increased, said Bundesbank board member Michael Theurer today when presenting the current report. "There are clear warning signs."

Theurer, who is responsible for financial stability at the Bundesbank, cites the increasingly aggressive cyber attacks as an example. Through artificial intelligence, they would gain more power and speed. "Of course it is dangerous if this brings payment transactions to a standstill or if sensitive customer data is stolen."

The number of problem loans is increasing

This is a problem that the credit institutions themselves have already recognized, said Bundesbank board member Theurer. He calls on them to close security gaps as quickly as possible. They have earned enough money in the past few years that they could invest in their IT: "Overall, the German credit institutions are well capitalized, they have enough equity." The German financial system is showing itself to be resilient.

According to Theurer, financial institutions should take precautions in the event that more loans default. “The number of corporate bankruptcies is higher than it has been for years,” said the Bundesbank board. The credit institutions themselves are also affected by the corporate loans that the banks granted to these companies. In addition, companies in difficulties often terminate their employees, and as a result they are increasingly unable to repay loan installments. The proportion of non-performing loans has increased since mid-2025.

Will the AI ​​bubble burst soon?

Theurer is also concerned about the current situation on the stock exchanges: "There is the so-called AI hype surrounding companies related to artificial intelligence," said the central banker. "They have rushed from record to record on the stock markets, so there is a risk of price corrections."

In the worst case scenario, Theurer fears shock waves for the global financial system. There was a foretaste of this about a week ago. At that time, doubts arose about the profitability of these AI companies. The Bundesbank also sees a risk of infection for German banks here.

Concerns about France's debt

After all, many credit institutions own bonds from European countries. The increasing debt of these countries is also a problem, says the financial stability report. As a result, government bonds could lose more and more value, warns financial market expert Emanuel Mönch from the Frankfurt School.

He doesn't see a new euro debt crisis yet - "but the situation is very fragile, especially in France, which is heavily indebted." Now it depends on whether the country can get its finances under control and stabilize politically. The French presidential elections are due in April next year.

Shadow banks are growing rapidly

Aside from the classic banks, there are also the so-called shadow banks. “These include investment funds, pension funds, private lenders, leasing companies and securities traders,” says Mönch. The companies often do similar business to banks, but do not have banking licenses, which means they are not subject to the same rules. They are nevertheless closely intertwined with the German financial system.

The Bundesbank itself speaks of a rapidly growing, but little regulated area. In order to be able to correctly assess the risks here, more data is urgently needed. More exchange is needed worldwide, for example with the USA. So far, the whole thing has apparently largely been a blind spot for the Bundesbank.