The Financial Stability Committee believes that activating the CCyB is justified because cyclical systemic risks have been building within the German financial system as a result of the economic upswing and low interest rates in recent years. These cyclical risks are: (i) potentially underestimated credit risks, (ii) potentially overvalued loan collateral encouraged by years of rising real estate prices, and (iii) interest rate risks if interest rates remain at zero for an extended period of time (low interest rate environment) or rise sharply (interest rate risks). BaFin followed the Financial Stability Committee recommendation and increased the rate from 0 percent to 0.25 percent effective 1 July 2019.
Downside risks have increased significantly due to the outbreak of the Covid-19 pandemic and associated uncertainty. Consequently, BaFin lowered the CCyB to 0% as of 1 April.