The Joint Committee of the European Supervisory Authorities (Joint Committee) published its first Report on Risks and Vulnerabilities in the European Union’s (EU) Financial System, identifying a range of risks and challenges:

  • Risks from the weak macroeconomic outlook for the financial health of real-economy and sovereign borrowers, and consequently for financial institutions’ asset quality and profitability.
  • Risks of a prolonged period of low interest rates impacting insurers and pension funds, increasing search for yield behaviour and facilitating widespread forbearance by banks.
  • Risks of further fragmentation of the single market in financial services due to evidences of national retrenchment, home bias, reduced cross-border activity and clustering of markets.
  • Risks from increased reliance on collateral in financial transactions.
  • Risks to confidence in financial institutions balance sheet valuations and risk disclosures.
  • Risks of loss of confidence in financial market benchmarks.

These risks, although presented individually in this report, are highly interlinked and require a concerted response by policy makers both at the political level and from the European System of Financial Supervision including the European Supervisory Authorities (ESAs). Suggested policy actions to restore the confidence in the financial system are proposed. The challenge facing policy makers is to restore the confidence and trust in the financial system that has been eroded during recent years’ financial crises.