ECB flags rising financial stability risks in Nov. review

The European Central Bank (ECB), in its November 2024 review, highlighted rising financial stability risks, pointing to a volatile environment shaped by macro-financial uncertainty, geopolitical tensions, and trade policy concerns.

ECB Vice President Luis de Guindos warned that while markets remain resilient, vulnerabilities like high equity valuations and risks in corporate credit markets could lead to sharp adjustments.

Non-bank financial intermediaries (NBFIs) are particularly vulnerable due to liquidity fragility, high leverage, and concentrated exposures.

Sovereign debt challenges persist, with euro area countries facing higher borrowing costs and fiscal strain. Corporate profits are under pressure from high interest payments, and the commercial real estate sector is stressed by shifts to remote work.

Households are relatively stronger due to robust labour markets, increased savings, and lower debt. However, small businesses and lower-income households could struggle if economic growth slows.

The ECB called for maintaining capital buffers and strengthening policies to support NBFI resilience and financial stability.

Attribution: The European Central Bank (ECB)

Subediting: M. S. Salama