The European Central Bank issued its second Financial Stability Review which will be published half-yearly in June and December each year. In his opening remarks Mr Trichet, President of the European Central Bank, mentioned that this report is to promote awareness in the financial industry and among the public at large of issues that are relevant for preserving and enhancing the stability of the euro area financial system. By providing an overview of sources of risk and vulnerability to financial stability, the review also seeks to help preventing financial tensions.
Presenting the main findings of the report, Mr Padoa-Schioppa said that financial fragility may increase if:
Markets abruptly re-assess risks, especially credit risks
Global re-balancing becomes disorderly
Oil prices remain persistently high
Low levels of provisioning prove to be inadequate
The outlook for financial stability is more mixed than six months ago:
The pace of global economic activity has remained quite strong
Balance sheets of large corporations have improved further
Balance sheets of financial institutions have been strengthened
But risks have not declined:
Possibility of disorderly correction of serial bubbles
Possible unruly unwinding of global imbalances
High oil prices and sluggish domestic demand raise corporate sector credit risks
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Presentation Padoa-Schioppa
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