The risks to financial stability in the eurozone have increased in recent months, but the single currency bloc is equipped to deal with them, the European Central Bank said on Tuesday. In its half-yearly Financial Stability Review, the ECB identified four key sources of risk for euro area financial stability over the next two years.
And "compared with the November 2015 FSR, most risks have increased," the central bank said. Risks of new financial market turmoil, "triggered by emerging market stress and persistently low commodity prices," had increased and could now be classified as "medium," the ECB said. Similarly, the risks from weak profitability prospects for banks and insurers has also increased to medium.
At the same time, concerns about debt sustainability in sovereign and non-financial private sectors were also on the rise, amid heightened political uncertainty and low nominal growth, but currently represented only a "potential" risk, the ECB continued. Nevertheless, the central bank insisted that "overall, the euro area financial system has been able to absorb the tensions," and was in good shape against the context of the increased vulnerability created by the severe market turmoil at the beginning of the year.