The European Systemic Risk Board (ESRB) has confirmed that systemic risks in the EU remain elevated amid growing financial market vulnerabilities. Riskier asset classes, particularly in segments like the US technology sector, appear overvalued, while strong market optimism contrasts with subdued economic growth prospects. Investor sentiment could quickly shift to risk aversion if global economic or political uncertainties rise.
The Board highlighted vulnerabilities in parts of the non-bank financial sector, including leverage, liquidity mismatches, and opacity in private markets and hedge funds. These factors, along with the EU’s high global interconnectedness, could amplify market stress. Recent developments in crypto markets also raise concerns about valuation and governance risks.
Despite these vulnerabilities, the EU financial system remains resilient. Stress tests show strong capital and liquidity buffers in banks, though some credit risks are emerging in specific jurisdictions. Insurers remain sound, but recent Solvency II changes have reduced regulatory prudence. The upcoming implementation of the Insurance Recovery and Resolution Directive in 2027 is key to ensuring robust resolution frameworks.
The General Board approved the forthcoming publication of two joint ESRB–ECB reports:
-
Banks and Non-Bank Financial Intermediaries (NBFIs): Examining liquidity, leverage, and financial stability implications.
-
Geopolitical and Geoeconomic Risks: Outlining monitoring tools and implications for financial stability.
Both reports will be released in due course.
