Risks from the low interest rate environment have so far been limited

Increases in house prices have been broadly aligned with rising household income
and rental prices (Deutsche Bundesbank, 2015), although in some of the largest cities with
highest population density housing prices have grown significantly faster than rents
(Kholodilin and Michelsen, 2015).

In any case, growth of lending to private households
for housing purchases remains moderate (Deutsche Bundesbank, 2016). The large
internationally active banks have downsized their large exposures to derivatives, which
were identified as a substantial systemic risk in the 2014 OECD Economic Survey of Germany.

They have improved capital buffers, which also reduces systemic risk. The ratio of Tier 1
capital to risk-weighted assets of Germany’s banking sector is relatively high. However, the
ratio of total book capital to unweighted assets remains is low.