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Purpose – The paper is to understand how the financial system is influenced by macroeconomic shocks and how the financial stance, in turn, feeds back into the macroeconomic environment is key for policy makers. The most recent financial crisis has demonstrated the need for a deeper understanding of these interdependencies. The purpose of this paper is to analyze what macroeconomic shocks affect the soundness of the German banking system. Design/methodology/approach – The paper draws on a micro-macro stress-testing framework for the German banking system in which macroeconomic and bank-specific data are used to identify the effects of various shocks in a structural vector autoregressive model, which includes main macroeconomic variables and an indicator of stress in the banking system. To this end, the sign-restriction approach is applied. Findings – First, it is found that there is a close link between macroeconomic developments and the stance of the banking sector. Second, monetary policy shocks are the most influential shocks for distress in the banking sector. Third, fiscal policy shocks and real estate price shocks have a significant impact on the distress indicator, while evidence is mixed for the exchange rate. Fourth, for the identification of most shocks it is essential to work in the integrated model that combines the micro- and the macro-sphere. Originality/value – The paper analyzes various shock scenarios in an integrated micro-macro framework that takes the mutual relationship between the financial stance and the macroeconomic environment into account. [ABSTRACT FROM AUTHOR]