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Financial and monetary stability

Trading floor of the Frankfurt Stock Market

Disruptions in the financial system can damage an economy severely. Moreover, they prevent monetary policy from being properly implemented, thereby putting price stability at risk. The Bundesbank, through its role in safeguarding financial stability, thus also makes a major contribution to fulfilling its monetary policy tasks.

Its day-to-day involvement in banking supervision gives it a deep insight into the business situation of Germany's credit institutions. However, the financial crisis, in particular, has clearly illustrated the fact that oversight of individual institutions, or microprudential oversight, is inadequate to expose all those risks which can jeopardise the financial system. It is not only credit institutions but also insurers, investment funds, financial markets and the financial infrastructure, for instance, which play a key role. It is often multiple institutions acting in concert which, even if they individually or "microprudentially" appear healthy, can create risks to stability, such as by herding. Problems in the financial system can spread across borders and sectors because today's financial institutions and financial markets are closely interlinked through modern information technology and a wide array of financial products such as derivatives. All this makes it necessary to oversee the financial system from a more comprehensive, or "macroprudential" perspective. The Bundesbank identifies and assesses risks to the stability of the financial system under its macroprudential mandate, which was assigned to it at the beginning of 2013 by the German Financial Stability Act (Finanzstabilitätsgesetz).

The Bundesbank is involved in all major national, European and global institutions and committees that are dedicated to the stability of the financial system and of the international monetary system. These include the German Financial Stability Committee (G-FSC), the European Systemic Risk Board (ESRB), the relevant committees of the Bank for International Settlements (BIS) and the Financial Stability Board (FSB). In the European System of Central Banks (ESCB), the Bundesbank is involved in protecting financial stability through, amongst other bodies, the ESCB's Financial Stability Committee (FSC). The FSC provides input to the Governing Council of the ECB and the Single Supervisory Mechanism (SSM) for their microprudential and macroprudential tasks. Finally, the Bundesbank publishes a Financial Stability Review each year, in which it evaluates the resilience of the German financial system and analyses the risks to financial stability. These analyses and assessments provide market players and politicians with impetus to further improve the regulatory framework and the performance of the financial system.

Through its financial contribution to the IMF in the form of quota shares, along with bilateral and multilateral lending resources, the Bundesbank does its part to protect the stability of the international financial and monetary system and to mitigate or resolve international financial crises. In so doing, the Bundesbank takes on the financial rights and obligations of Germany's membership of the IMF on the basis of the German IMF Act. The Bundesbank's President is the Governor of the IMF for Germany. In cooperation with the Federal Ministry of Finance, the Bundesbank participates in the discussions in the IMF on issues pertaining to financial stability and the international monetary system.