Faced with the third wave of Covid-19 affecting Europe, the three European financial supervisory authorities (ESAs – EBA, ESMA, and EIOPA) warned on Wednesday 31 March against a possible new shock on the financial markets.
In their report on risks and vulnerabilities in the European financial system, they highlight how the pandemic continues to weigh heavily on short-term recovery prospects, point to a number of vulnerabilities in financial markets, and warn of possible further market corrections.
According to the ESAs, macroeconomic conditions improved in the second half of 2020 due to continued fiscal and monetary policy efforts, but the resurgence of the Covid-19 pandemic since the last quarter of 2020 has led to increasing economic uncertainty.
“The start of the rollout of vaccinations provides a crucial anchor for medium-term expectations, but insufficient production capacity, delays in deliveries, as well as risks related to mutations of the virus are weighing heavily on short-term recovery prospects”, they say.
Given these risks and uncertainties, the ESAs advise that national competent authorities and market participants prepare for an expected deterioration in asset quality.
Banks should also continue to carry out thorough risk assessments to ensure that loans remain viable in the future, including after the expiry of government support measures such as loan moratoria and public guarantee schemes, they say.
The ESAs also advise, at this stage, that prudent dividend and share buy-back policies should be pursued.
See the report: https://bit.ly/3uak0m0 (Original version in French by Marion Fontana)