September 12, 2024
The three European supervisory authorities (EBA, EIOPA and ESMA - ESA) today published their autumn 2024 Joint Committee Report on risks and vulnerabilities in the EU financial system. The report underlines the ongoing high economic and geopolitical uncertainties. The ESAs warn national supervisors of the risks to financial stability arising from these uncertainties and call for continued vigilance by all financial market participants. For the first time, the report also includes an in-depth cross-sector analysis of credit risks in the financial sector. In particular:
- financial institutions and supervisors should be prepared for the impacts of continued high interest rates on the real economy;
- credit risk should continue to be closely monitored and managed as its potential materialisation remains a concern. This underlines the need for adequate provisioning levels and forward-looking provisioning policies, while maintaining prudent and up-to-date collateral valuation;
- financial institutions need to be flexible and agile and have adequate plans and processes in place to deal with unexpected and multiple short-term challenges;
- financial institutions and supervisors should remain vigilant about the impact of inflation on product development.
- financial institutions and supervisors should remain vigilant about operational and financial stability risks that could arise from cyber risks, as exemplified by the global IT outage in July due to the failed software upgrade of a widely used cybersecurity company.
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