The Financial Stability Review provides an overview of potential risks to financial stability in the euro area. It aims to promote awareness in the financial industry and among the public of euro area financial stability issues.
Risk-taking in financial markets has intensified. Abrupt movements in US stock prices in February underscored the fragility of market sentiment. Some euro area asset valuations have been high compared with historical norms.
Financial stability is a state whereby the level of systemic risk is contained.
Systemic risk can best be described as the risk that the provision of necessary financial products and services by the financial system will be impaired to a point where economic growth and welfare may be materially affected.
Systemic risk can come from three sources:
an endogenous build-up of financial imbalances, possibly associated with a booming financial cycle
amplification of shocks hitting the economy or the financial system
contagion effects across markets, intermediaries or infrastructures.