November 29, 2017

ECB published the results of its financial stability review in November 2017. The financial stability review assesses developments relevant for financial stability, including identifying and prioritizing the main sources of systemic risk and vulnerabilities for the euro area financial system. It covers shadow banking activities involving nonbank financial intermediaries, financial markets, and market infrastructures, in addition to banks.

This review includes seven boxes and four special features aimed at deepening the ECB’s financial stability analysis and broadening the basis for macro-prudential policymaking. The first special feature examines the possible use of an nonperforming loan (NPL transaction platform). The second provides an overview of euro area cross-border banking over the past decade. The third discusses recent developments in euro area repo markets and looks at the possible effects of regulatory reforms on these markets. The fourth and final feature assesses the low volatility in financial markets.

This issue of the FSR identifies four main risks to euro area financial stability over the next two years. The first risk refers to an abrupt and sizable repricing of risk premia in global financial markets. The second risk concerns the continued weak profitability prospects for the banking sector. A potential re-emergence of public and private sector debt sustainability concerns constitutes the third risk. The fourth risk is associated with liquidity risks in the nonbank financial sector. The first three risks are assessed as being “medium-level systemic risks,” while the fourth is considered to be a “potential systemic risk.”

 

Related Link: Financial Stability Review (PDF)

Keywords: Europe, EU, Banking, Securities, FMI, Financial Stability Review, Systemic Risk, Liquidity Risk, NPLs, ECB