Ukraine war could create combination of slow growth, falling prices and market stress, according to ESRB
Europe’s top financial regulators have issued an unprecedented warning about “severe risks to financial stability” after concluding Russia’s invasion of Ukraine could create a toxic combination of an economic downturn, falling asset prices and financial market stress.
The European Systemic Risk Board, which is responsible for monitoring and preventing dangers to the region’s financial system, issued the alert after meeting last week and deciding the energy crisis triggered by the war in Ukraine had put the financial system in a precarious position. This is the first “general warning” about risk the ESRB has issued since its creation in 2010 on the eve of the eurozone sovereign debt crisis.
The authority, which is chaired by European Central Bank president Christine Lagarde, called on regulators in the 30 countries it oversees to prepare for a potential crisis by requiring the financial institutions they supervise to build up bigger buffers of capital and provisions that can absorb losses.
The ESRB’s warning was agreed on September 22, several days before the new UK government’s unorthodox fiscal plans caused turmoil in financial markets and forced the Bank of England to intervene by buying bonds. People briefed on ESRB discussions said the UK’s problems were not part of the discussions, however they acknowledged that they were likely to now be an additional worry for regulators in Europe.
Concerns about the health of Europe’s financial system have increased since the Ukraine conflict pushed energy prices up, driving inflation to multi-decade highs, prompting central banks to raise interest rates aggressively and triggering a sell-off in bond and equity markets....
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