In a speech ahead of the European Central Bank’s forthcoming Financial Stability Review, Vice-President Luis de Guindos set out the ECB’s latest assessment that euro area financial stability vulnerabilities remain elevated amid persistent geoeconomic uncertainty and the longer-term effects of tariffs, despite inflation being close to 2% and expected to keep converging towards the medium-term target. He emphasised the need to maintain the resilience of banks by upholding existing macroprudential measures and to step up monitoring and strengthen the macroprudential framework for the non-bank sector, including through better data in private markets. The ECB identified three main sources of risk. Financial markets were described as vulnerable to sharp, correlated price adjustments, with high valuations, growing concentration and interconnection among a handful of large US-based technology firms, and the potential for abrupt sentiment shifts; liquidity vulnerabilities in open-ended funds and pockets of high leverage in hedge funds were highlighted as channels for fire sales. Fiscal risks were linked to elevated debt and persistent deficits in parts of the euro area, rising medium-term pressures including higher defence spending needs, and the possibility that fiscal slippage or non-compliance with the EU’s new fiscal framework could test investor confidence, alongside global fiscal fragilities that could stress benchmark bond markets. Corporate-sector vulnerabilities were tied to the impact of tariffs and euro appreciation on tariff-sensitive, export-oriented sectors such as manufacturing, with the potential for deteriorating bank credit quality and higher provisioning needs, amplified by growing bank–non-bank interlinkages. De Guindos also singled out rapidly growing private markets in the euro area, which total over EUR 700 billion in assets, as a potential amplifier of shocks through layered leverage, liquidity mismatches, opaque valuations and tighter links with banks and insurers, even if risks are currently assessed as contained given their size relative to the roughly EUR 30 trillion euro area banking sector. He argued that safeguarding stability alongside stronger EU growth prospects will require advancing the savings and investments union through deeper equity markets, mobilisation of retail and institutional savings, and more integrated supervision.
European Central Bank 2025-11-17
European Central Bank outlines elevated euro area financial stability vulnerabilities and urges stronger macroprudential oversight of non-banks
European Central Bank Vice-President Luis de Guindos noted elevated financial stability vulnerabilities in the euro area due to geoeconomic uncertainty and tariffs, despite inflation nearing 2%. He emphasized maintaining bank resilience through macroprudential measures and enhancing the framework for the non-bank sector. Key risks include financial market volatility, fiscal pressures from high debt and deficits, and corporate vulnerabilities linked to tariffs and euro appreciation.