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Financial Stability Review

The Financial Stability Review provides an overview of potential risks to financial stability in the euro area. It aims to promote awareness in the financial industry and among the public of euro area financial stability issues.

It is published twice a year.

November 2019
Financial Stability Review
The financial stability environment
remains challenging

Key vulnerabilities in the financial system:

Potential for future asset price corrections

Lingering debt sustainability concerns

Growing bank profitability challenges

Increased risk-taking by non-banks


November 2019
Financial stability review

Overview

Economic growth in the euro area is expected to remain subdued for longer. Search for yield has continued in the low interest rate environment amid signs of excessive financial risk-taking, including by some non-banks, highly leveraged corporates and real estate sectors.

Macro-financial and credit environment

Private and public sector debt sustainability concerns remain, but are mitigated by low interest rates. Pockets of vulnerability in the non-financial corporate sector and property markets may need to be monitored closely going forward.

Financial markets

As investors search for yield, prices of both safer and riskier financial assets have risen. As a result, asset valuations are increasingly dependent on low benchmark yields and more sensitive to changes in them.

Euro area banking sector

Challenges to bank profitability have increased as support from cyclical factors is waning, while cost inefficiencies and overcapacities in some parts of the banking sector persist.

Non-bank financial sector

While the non-bank financial sector continues to expand, there are challenges to profitability and solvency in the low interest rate environment. Investment funds, insurers and pension funds have continued to take on more liquidity and credit risk.

Macroprudential policy issues

All countries in the euro area have implemented macroprudential measures to mitigate risks and build resilience in recent years. However, the countercyclical capital buffer could be used more actively in some countries.



What is financial stability?

Financial stability can be defined as a condition in which the financial system – which comprises financial intermediaries, markets and market infrastructures – is capable of withstanding shocks and the unravelling of financial imbalances.

This mitigates the likelihood of disruptions in the financial intermediation process that are systemic; that is, severe enough to trigger a material contraction of real economic activity.


Macroprudential Bulletin
Spotlight on financial stability

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