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.