The Joint Committee of the European Supervisory Authorities (ESAs) published its second bi-annual Report on Risks and Vulnerabilities in the EU Financial System. The Report identifies the following key cross-sectoral risks to the stability of the EU financial system:
- the weak macro-economic outlook;
- the protracted low-interest rate environment;
- EU financial sector fragmentation; and
- reduced confidence in balance sheet valuations and risk disclosures.
In particular, the report highlights that increased volatility in longer-term interest rates and concerns about the future path of interest rates - combined with the current low interest rate environment - creates uncertainty for financial institutions in their hedging and impacted profitability.