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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, with the next release provisionally set for 22 November 2023.
Under the shadow of geopolitical conflict, successive global economic shocks, weak euro area economic growth, and tightened financing conditions due to central banks’ need to bring inflation back to target, financial fragilities are looming. Sovereigns are facing substantially higher bond yields in markets to finance their sizable fiscal deficits. High credit costs are showing their effects on firms’ and households’ debt service burden and in corporate and mortgage credit volumes. Euro area real estate markets are experiencing a downturn. Asset markets are adjusting to a scenario of high interest rates for a longer period of time but may not have fully priced in a possible more marked slowdown following from geopolitical tensions. Bank profitability benefits from the tailwinds of high interest rate margins, bolstering banks’ equity buffers, but headwinds from a weak economy, deteriorating credit quality and rising refinancing costs are growing. Non-bank financial firms have proven resilient but face challenges both from cyclical and structural factors. At a structural level, the growing role of artificial intelligence and the prospect of a digital euro imply new needs and opportunities to adapt business models to a rapidly changing environment. Macroprudential overseers need to gauge the impact of these multiple factors and deepen and broaden the scope of their toolkit for bolstering financial sector resilience.
