Bank ECB warns of increased risks to financial stability

In an increasingly harsh international environment, the risks for financial players in the eurozone have increased, according to the European Central Bank (ECB). Wars, conflicts and economic weakness are major challenges for the players.

"The outlook for financial stability is clouded by increased macro-financial and geopolitical uncertainty coupled with growing trade policy uncertainty," said ECB Vice President Luis de Guindos, summarizing the findings of the central bank's latest semi-annual Financial Stability Report.

Trade conflicts with the USA, for example, could put additional pressure on the already weakening economy. US President-elect Donald Trump has announced new tariffs of 10 to 20 percent on imports from Europe.

Even if the financial markets have proved resilient so far, there is no reason for complacency, warned the ECB. One of the concerns of the euro currency guardians is the continuing high level of debt in many countries. As the economy is weakening at the same time, concerns about the sustainability of national debt could resurface on the financial markets.

Commercial real estate markets remain under pressure

According to the ECB, small and medium-sized enterprises and low-income households could come under pressure if economic growth slows down even more than currently expected. There is then a risk of more loan defaults.

For example, there is a risk that losses from commercial real estate loans could increase further and be significant for individual banks and investment funds, writes the ECB. Because less office space is needed due to the trend towards working from home, the market for this type of real estate has been under pressure in many countries for some time.

SDA