The assessment of Luxembourg’s large, interconnected, and complex financial system took place against heightened economic, financial, and geopolitical uncertainty. Investment funds have grown since the 2017 FSAP, while their connections to other funds, banks, nonbank financial intermediaries, and foreign entities have also increased. Domestic banks face risks from the ongoing downturn in credit and house price cycles, especially in the high-risk mortgage segment. Securities portfolios in large banks are mostly held-to-maturity and spread across euro area issuers. The banking sector maintains higher capital ratios than euro area peers, has low but rising nonperforming loans, and benefits from support to the economy from a AAA-rated sovereign.