BaFin & Geopolitical Risks: Update 3

The economic and political environment is shaped by global fragmentation tendencies and geopolitical upheavals. The German economy and the financial sector are strongly interconnected globally, which creates dependencies and vulnerabilities with high potential risks to financial stability.

Geopolitical developments do not create an independent risk category, but they affect almost all supervisory-relevant risk types of the objects of supervision. Negative effects occur directly (such as through credit and market risk exposures in affected regions), indirectly (such as through disruptions in foreign trade and supply chains) or via hybrid channels (such as cyber attacks or acts of sabotage).

World trade order in transition

The increase in geopolitical tensions worldwide is leading to increased uncertainty and massive losses of trust at all levels: in politics, in the real economy and also in the financial markets. The new one in spring 2025 USThe global tariff offensive launched by the administration has significantly increased economic uncertainty (see Figure 10). This was accepted by most of the trading partners USA perceived as unbalanced and aggressive and for economic development – both globally and especially in the USA itself – viewed as extremely risky. With the trade agreement between the EU and the USA In July 2025 the situation calmed down. However, the agreed tariffs and the ongoing high level of uncertainty are having a lasting impact on the growth prospects for the European export industry. They can cause companies to rethink their investments.

Abbildung 10: Economic Policy Uncertainty Index

Source: Baker, Scott R., Nicholas Bloom, and Steven J. Davis, Economic Policy Uncertainty Index, data retrieved from policyuncertainty.com, BaFin’s own presentation, as of November 26, 2025.

Also the trade conflict between the USA and China continues to smolder. Import and export controls from different sides and other trade measures have additional negative third-party consequences for the German economy. Another impact of the trade disputes: Chinese products that were originally intended for the USmarket are increasingly being exported to other regions, including Southeast Asia, Africa and Europe. Exports from China increased EU compared to the previous year by 8.2 percent. Since the third quarter of 2025, China has USA replaced as Germany’s most important trading partner, which is also due to the significant increase in Chinese imports.

Geopolitical conflicts put a strain on national budgets

The increasing threat of geopolitical tensions and increased efforts to improve defense capability are also leading to increasing defense spending in Europe. Due to concerns about government debt sustainability and fear of the effects of global customs conflicts, the yields on government bonds from many euro countries USA and the UK have risen to long-term highs over the course of 2025, with long-dated government bond yields rising more than shorter-dated government bond yields. This can result in negative valuation effects for banks and insurers, but – as of the end of 2025 – these appear to be bearable.

Geopolitical upheavals make it difficult to value assets

Financial sector companies should address geopolitical risks. The resulting market volatility makes it difficult to value assets in fund portfolios, especially illiquid ones Assets like real estate, Private Equity and emerging market bonds. Nevertheless, funds must be evaluated regularly, for example for share price determinations or legal reporting requirements.

Increasing volatility caused by geopolitical risks is also affecting insurance companies. The valuation uncertainties are increasing and there is a risk of write-downs on the capital investment, which would put a strain on the insurers’ earnings situation. In addition, the increased volatility in the form of falling solvency ratios can have a negative impact on the risk-bearing capacity of insurance companies.

Conflicts are increasingly shifting into cyberspace and increasing the risk of sabotage

Given growing geopolitical tensions, state-controlled cyber attacks are also becoming more important. These attacks represent a particular challenge because hidden state or state-supported attackers from cyberspace often have very extensive and modern technical resources. The results from the Digital Defense Report also show how current and relevant such threats from cyber space are Microsoft. As a result, the number of suspected cyber attacks by Russia on members of the NATOdefense alliance has increased by 25 percent in the past twelve months. According to the report, the focus is particularly on: USAGreat Britain and Germany.

The BSI assumes that critical infrastructure (KRITIS) systems in particular are potential attack targets. Parts of the financial sector, as critical infrastructures, are particularly the focus of cyber attacks. Over the past two decades, around 20 percent of cyber attacks recorded worldwide have targeted the financial sector. German financial companies see state actors and organized crime actors as the main threats to external cyber attacks. In a tense geopolitical world situation, the risk increases that cyber attacks will destabilize not only individual financial service providers, but entire markets. Confidence in the market can weaken, including through targeted disinformation campaigns. This can, for example, result in increased liquidity outflows from banks.

Last but not least, companies are increasingly storing goods IT-Services to external providers such as cloud providers, which increases the potential attack surface and geopolitical dependencies, as the three cloud hyperscalers relevant to the market are based in the USA have.

In addition to the threat from cyberspace, the risk of physical and digital sabotage of critical infrastructure remains. The more energy and transport networks are affected, the greater the systemic risks become, as these networks are closely linked to industry and trade. For example, the 2022 Nord Stream explosions led to sharply rising gas prices and increased energy insecurity, putting pressure on energy-intensive companies. German rail transport was particularly affected in 2025, as the rail network was exposed to an increasing number of sabotage attacks.

Such disruptions affect the profits, liquidity and creditworthiness of companies and therefore indirectly affect banks, insurers and capital markets. In addition, serious acts of sabotage can lead to increased market volatility and loss of trust. This can make refinancing companies more expensive. Insurers, in turn, are seeing rising claims burdens. Overall, the cases so far show that sabotage of infrastructure not only causes technical disruptions, but can also lead to noticeable financial burdens and shifts in risk throughout the entire financial system.

In addition, German companies are also directly affected by data theft, sabotage and espionage. According to the Bitkom economic protection study, the resulting damage to the German economy was eight percent more in 2025 than in 2024 eV to 289.2 billion euros.

Dealing with geopolitical risks

Financial market participants should deal with possible risks – for example with the help of internal stress tests and scenario analyses. They should derive appropriate measures from the findings. Sufficient capital and liquidity buffers as well as a good one Management operational risks are more important than ever.

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