28 May 2014
ECB Financial Stability Review: Eurozone banks seen strengthening, but risks remain
FXStreet (Łódź) - In the ECB Financial Stability Review, released on Wednesday, the central bank said that the Eurozone economic recovery is expected to remain uneven and continue at a slow pace. Sentiment could be undermined by political tensions in Ukraine and a possible growth slowdown in China, the report stated.
It was stressed however that the advancing preparations for the banking union in the euro area and the financial institutions' efforts to strengthen their balance sheets have reduced stress in the banking sector considerably. Furthermore, the intensification of the search for yields has been beneficial for Eurozone banks and Member States so far.
The three main risks for financial stability in the Eurozone during the next 18 months, listed in the report include an “abrupt reversal of the global search for yield, amid pockets of illiquidity and likely asset price misalignments,” a “continuing weak bank profitability and balance sheet stress in a low inflation and low growth environment,” as well as “re-emergence of sovereign debt sustainability concerns, stemming from insufficient common backstops, stalling policy reforms, and a prolonged period of low nominal growth.”
It was stressed however that the advancing preparations for the banking union in the euro area and the financial institutions' efforts to strengthen their balance sheets have reduced stress in the banking sector considerably. Furthermore, the intensification of the search for yields has been beneficial for Eurozone banks and Member States so far.
The three main risks for financial stability in the Eurozone during the next 18 months, listed in the report include an “abrupt reversal of the global search for yield, amid pockets of illiquidity and likely asset price misalignments,” a “continuing weak bank profitability and balance sheet stress in a low inflation and low growth environment,” as well as “re-emergence of sovereign debt sustainability concerns, stemming from insufficient common backstops, stalling policy reforms, and a prolonged period of low nominal growth.”