Financial Stability Review

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.

It is published twice a year.

May 2018
Financial Stability Review
The financial stability
environment in the euro area
has remained favourable

Looking ahead to the next two years, risks remain:

sharp falls in global asset prices

weak bank profitability jeopardising the supply of credit

concerns over public and private indebtedness

liquidity risks in the investment fund sector

May 2018
Financial stability review

Overview chapter

Financial stability in the euro area has benefitted from a growing economy, but abrupt repricing in financial markets could challenge the favourable environment.

Macro-financial and credit environment

The sustainability of public finances has been supported by economic expansion but could face challenges if, for instance, growth were to weaken significantly.

Financial markets and valuations

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.

Euro area financial institutions

Banks’ resilience strengthened in 2017. Euro area banks are, however, still challenged by high operating costs, low revenue diversification and, in some regions, high levels of non-performing loans.

Regulatory framework

A full implementation of the Basel III package across all jurisdictions is key to financial stability. Cyber threats have become an important concern.

What is financial stability?

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.

Macroprudential Bulletin
Spotlight on financial stability