Yield-starved banks expanded lending to “relatively high-risk businesses” and to the property sector, as the Bundesbank considers house prices in many cities overvalued by 15% to 30%.

The “risks to financial stability have continued to build up in Germany,” the Bundesbank warns in its Financial Stability Report, published this week. One major risk highlighted by the central bank is that Germany’s current economic slowdown — the result largely of “unfavourable external economic developments” — could turn into an “unexpected economic downturn”.



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