Brussels, 30/05/2014 (Agence Europe) - The financial stability report issued by the European Central Bank (ECB) on Wednesday 28 May says that investor fear about the financial system decreased at the end of last year, but warns of the emergence of new imbalances due to the shift of capital away from emerging markets to the eurozone in search of higher yields and new market segments.
The ECB sees three risks emerging over the next 18 months in the eurozone - 1) “Abrupt reversal of the global search for yield”; 2) “Continuing weak bank profitability and balance sheet stress in a low-inflation and a low-growth environment”; 3) “Re-emergence of sovereign debt sustainability concerns”.
The ECB is currently running an asset quality review (AQR) that will run until October for banks in the eurozone, and the European Banking Authority is running bank stress tests. The ECB wants eurozone banks to consolidate their balance sheets and set up liquidity buffers. Ahead of the results, the 128 big banks in the eurozone that will be directly supervised by the ECB from November onwards added more than €100 billion to their balance sheets between July 2013 and April 2014 (see EUROPE 11079). The ECB urges member states to continue with their structural reform plans even though investors are now taking a rosier view of eurozone debt. (MB)