The three European Supervisory Authorities (ESAs) - the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA) - published on Wednesday 13 April their first joint risk assessment report for 2022. The report highlights the growing vulnerabilities across the financial sector, as well as the rise of environmental and IT risks.
According to the ESAs, the EU economy was on the road to a strong recovery from the crisis caused by the Covid-19 pandemic, and the financial sector had largely held up. However, new waves and variants of the virus, concerns about the risk of inflation, rising commodity prices, and increased geopolitical risks have hampered this recovery. These risks, which emerged in 2021, were amplified by Russia’s invasion of Ukraine, the economic consequences of which worsened the outlook for growth and inflation and led to increased market volatility. The resilience of markets will depend critically on the ability of markets and financial institutions to cope.
Financial markets remain vulnerable to changes in market sentiment. In the housing sector, the persistent rise in prices and in household borrowing have increased the risks. The financial sector is increasingly exposed to environmental and digitalisation-related risks.
Therefore, the ESAs advise the competent national authorities, financial institutions, and market participants to take certain measures: - prepare for possible further negative consequences; - ensure compliance with the sanctions regimes, in coordination with the authorities and financial market participants; - prepare for a possible deterioration in asset quality in the financial sector; - beware of potential further increases in yields and sudden reversals in risk premiums; - pay attention to retail investors; - further integrate social, environmental, and management considerations into business strategies and governance structures; - strengthen digital resilience measures.
To read the ESAs report: https://aeur.eu/f/19x (Original version in French by Anne Damiani)