On May 29, the European Central Bank (ECB) published its financial stability review with an accompanying press release. The ECB believes the financial stability conditions in the Euro area remain fragile, and that there is still vulnerability in the interaction between sovereigns, banks and the macroeconomy. The ECB highlighted the following four key risks to the Euro area in the review: (i) Further decline in bank profitability. This is linked to credit losses and a weak macroeconomic environment. (ii) Renewed tensions in sovereign debt markets due to low growth and slow reform implementation. Continued momentum is needed towards completing a genuine Economic and Monetary Union (EMU), including a full banking union. (iii) Bank funding challenges in stressed countries. Continued steps at both national and EU levels are needed to tackle the remaining fragmentation in bank funding. (iv) Reassessment of risk premia in global markets. Stable and predictable policies are key to the prevention of such a risk reversal.
The ECB stated that it published the review to promote awareness in the financial industry, and among the public, of issues that are relevant for safeguarding the stability of the Euro area financial system. Financial Stability Review. Press Release.