ECB Confident Stress Levels Are Back to Pre-Crisis Levels

Euro zone financial sector stress has fallen to levels not seen since before the global financial crisis began in 2007, but the sector remains fragile, the European Central Bank said on Wednesday.

In its semi-annual Financial Stability Review, the ECB said the key risks to euro zone financial stability are economic and financial shocks, tensions in government debt markets, global financial market turbulence and bank funding challenges in the euro zone periphery.

“Indicators measuring systemic stress have fallen back to close to their pre-crisis levels,” the ECB said in the report.

“Stress indicators and euro area fundamentals suggest alleviation of financial market tensions, especially on the banks’ funding side.”

Data published separately on the ECB’s Internet site showed that the systemic stress indicator hit in late September its lowest level in the euro era and has remained close to those levels since.

But the central bank said that with a crunch period of bank funding approaching, risks of banks cutting their balance sheets are increasing.

“With sizeable amounts of bank debt maturing over the coming months, persistently high funding costs for a set of challenged banks could amplify pressures for deleveraging of a disorderly nature – with an associated negative impact on economic welfare and growth.”

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza