1 Main section

Ladies and gentlemen,

At this conference, we will use the 20th edition of the Bundesbank’s Financial Stability Review as a chance to step back and reflect. In our first panel discussion, we will examine the role of the Financial Stability Review as part of macroprudential communication. Let me first put this in the context of the current situation. 

Against the backdrop of geopolitical tensions, erratic trade policy and structural challenges such as demographic change and digitalisation, macroprudential oversight and policy are facing major challenges.

The challenging current environment and the 20th anniversary of our Financial Stability Review provide us with a valuable opportunity today to take stock of where we stand. What makes macroprudential oversight and policy so important, and why does it matter right now in particular?

To answer these questions, I would first like to take a look at the past. The global financial crisis has left a lasting impact around the world and in Germany, too. It has shown us how expensive a financial crisis can be for society, as well as how important it is to keep an eye on the financial system as a whole. 

Before the global financial crisis, supervisors focused mainly on the microprudential perspective – in other words, whether individual banks and financial institutions are stable and resilient. But the crisis has taught us that interactions within the financial system can lead to systemic crises, regardless of the stability of individual actors. This insight has fundamentally altered our understanding of a secure financial system. Since then, the microprudential and macroprudential perspectives have complemented each other in the field of supervision.

1.1 Macroprudential policy since the global financial crisis

In Germany, macroprudential policy has been organised by the Financial Stability Committee since early 2013. The Federal Ministry of Finance, BaFin and the Bundesbank regularly discuss risks to financial stability as part of this committee. If necessary, they can recommend suitable measures, with BaFin being responsible for the specific use of the instruments. The Financial Stability Act of 2012 gave the Bundesbank an explicit mandate for a stable financial system, which brought about new tasks. In line with this mandate, we systematically analyse and describe the risks and the resilience of the financial system. We put our analyses forward for discussion in the Financial Stability Committee. 

Since the global financial crisis, we have achieved a great deal together at the international level. The quality and quantity of the own fund requirements for banks have been improved, additional capital buffers have been introduced and the legal basis for instruments for introducing minimum lending standards has been created. New regulatory framework conditions have also been established for non-bank financial intermediaries and insurers. These measures have made the financial system more resilient and have helped it weather the storms of recent years – be it Brexit, the coronavirus pandemic, or the geopolitical tensions triggered by Russia’s war of aggression against Ukraine.

But the absence of a global financial crisis in recent years should not lull us into false sense of security. Events such as the banking turmoil in the United States and Switzerland in spring 2023, or the latest developments surrounding the US tariff announcements, show that the situation in the financial markets remains uncertain. Persistent challenges such as geopolitical tensions or new technological developments – ranging from the increasing interconnectedness of stablecoins with the traditional financial system to the effects of artificial intelligence and quantum computing – are potentially making the financial system more vulnerable. 

The fact that events like the banking turmoil in the United States and Switzerland in spring 2023 or the US tariff announcements in April this year did not cause major disruptions in the financial system suggests that microprudential and macroprudential regulation has created effective guard rails. 

It is crucial that we continue to pursue and enhance our forward-looking policies whilst taking a holistic view of the financial system.

Generally speaking, we have three types of instruments available to us in the area of macroprudential oversight and policy. First, communicative measures; second, formal warnings and recommendations; and third, regulatory measures that directly influence financial institutions’ decision-making options in order to curb systemic risks.

1.2 The Financial Stability Review as a key communication tool

The Bundesbank’s Financial Stability Review is a key element of macroprudential communication in Germany. In 2005, the Bundesbank published its first Financial Stability Review as a standalone publication. At that point in time, in Germany – as in most other countries – we had no macroprudential mandate, no macroprudential instruments, and the Bundesbank did not even have a financial stability department.

The Financial Stability Review is the key tool for communicating our findings. It informs experts in the financial system, the media and academia, politicians in their role as multipliers as well as the general public about developments relating to financial stability. It outlines the need for action and formulates recommendations for action when there are signs of systemically important developments in the financial system. 

The risk environment has become more complex over the years. The more complex the environment, the more important clear and coherent communication becomes. The Financial Stability Review also plays a key role in this regard. It helps us to raise awareness among the general public, financial intermediaries and other relevant actors, to create trust and to lay the foundation for informed decisions. Especially in uncertain times, communication can curb excessive risk appetite and promote financial stability by highlighting risks, providing guidance – and thus reducing uncertainty.

In 1953, Milton Friedman argued that uncertainty was a central component of the economy, and the ability to deal with uncertainty was critical to the success of markets and individuals.[1]

Uncertainty is unavoidable. But we can – and want to – help find ways to deal with it. 

Let us use this conference to discuss how we can further strengthen macroprudential policy and adapt it to the challenges of the future. For one thing is clear: a stable financial system is not a matter of course – it is the result of continuous dialogue and forward-looking policymaking.

2 Panel introduction

In the first panel, we have:

• Cornelia Holthausen,
  She has been Director General for Macroprudential Policy and Financial Stability at the ECB since December 2021. She is a recognised expert in the analysis of money markets, payment systems and financial stability.

• Rupert Schaefer, 
  He has been Chief Executive Director of Strategy, Policy and Control at the Federal Financial Supervisory Authority (BaFin) since November 2022, and is a member of the Financial Stability Committee. Mr Schaefer works with me, Mr Branson and the other members of BaFin, the Bundesbank and the Federal Ministry of Finance in the German Financial Stability Committee.

• Doreen Herms,
  She has been Head of the Financial Stability Division of the Federal Ministry of Finance at the Federal Ministry of Finance since 2019 and is Secretary of the German Financial Stability Committee. She began her career here at the Bundesbank.

• Reiner Martin,
  He has been Executive Director of Národná banka Slovenska – the central bank of Slovakia – responsible for research, statistics and economic education since May 2023. He has many years of central banking experience, including as Deputy Head of the ECB’s Macro-Financial Linkages Division.

I am delighted that our panel participants will present their different perspectives here today. 

Footnote:

1. Milton Friedman, Essays in Positive Economics, 1953.