On Monday, the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) called on financial institutions, market participants and national supervisors to He warned against “increase in overall vulnerability.”
Joint Committee of European Supervisory Authorities in a statement It urged industry stakeholders to prepare for the challenges ahead.
their committee Joint Risk Report Fall 2022 The combination of the war between Russia and Ukraine and the trade turmoil “caused a rapid deterioration in the economic outlook,” he said.
These added to pre-war inflationary pressures, raising the risk of sustained inflation and stagflation on the continent, they said.
As a result, officials said financial market volatility had increased across the board.
They explained: “After a long period of low interest rates, central banks are tightening monetary policy.
“The combination of rising funding costs and declining economic output could put pressure on the refinancing of government, corporate and household debt, which could also adversely affect the credit quality of financial institutions’ loan portfolios. .
“Lower real returns due to rising inflation could lead investors to higher risk taking at a time when rising interest rates are initiating a broad-based rebalancing of portfolios.”
Policy action
In a statement, the regulator advised financial institutions and supervisors to continue to prepare for deterioration in asset quality in the financial sector.
They noted that this provision should cover assets that have enjoyed temporary measures designed to mitigate the impact of the COVID-19 pandemic.
Distressed economic conditions, inflation, high energy costs and commodities price sensitive assets also need to be considered in preparation.
“We need to closely monitor the impact of further rate hikes and a sudden rise in potential risk premiums on financial institutions and market participants as a whole,” he said.
In addition, they called on financial institutions to closely monitor the impact of inflation risks and the dangers they pose to retail investors.
As for retail investors, they noted that risk monitoring is particularly important for crypto assets and other products where consumers may not fully understand the level of risk involved.
“Financial institutions and supervisors will continue to need to carefully manage environmental and cyber risks to address threats to information security and business continuity,” the supervisor added.
On Monday, the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) called on financial institutions, market participants and national supervisors to He warned against “increase in overall vulnerability.”
Joint Committee of European Supervisory Authorities in a statement It urged industry stakeholders to prepare for the challenges ahead.
their committee Joint Risk Report Fall 2022 The combination of the war between Russia and Ukraine and the trade turmoil “caused a rapid deterioration in the economic outlook,” he said.
These added to pre-war inflationary pressures, raising the risk of sustained inflation and stagflation on the continent, they said.
As a result, officials said financial market volatility had increased across the board.
They explained: “After a long period of low interest rates, central banks are tightening monetary policy.
“The combination of rising funding costs and declining economic output could put pressure on the refinancing of government, corporate and household debt, which could also adversely affect the credit quality of financial institutions’ loan portfolios. .
“Lower real returns due to rising inflation could lead investors to higher risk taking at a time when rising interest rates are initiating a broad-based rebalancing of portfolios.”
Policy action
In a statement, the regulator advised financial institutions and supervisors to continue to prepare for deterioration in asset quality in the financial sector.
They noted that this provision should cover assets that have enjoyed temporary measures designed to mitigate the impact of the COVID-19 pandemic.
Distressed economic conditions, inflation, high energy costs and commodities price sensitive assets also need to be considered in preparation.
“We need to closely monitor the impact of further rate hikes and a sudden rise in potential risk premiums on financial institutions and market participants as a whole,” he said.
Additionally, they urged financial institutions to closely monitor the impact of inflation risks and the dangers they pose to retail investors.
As for retail investors, they noted that risk monitoring is particularly important for crypto assets and other products where consumers may not fully understand the level of risk involved.
“Financial institutions and supervisors will continue to need to carefully manage environmental and cyber risks to address threats to information security and business continuity,” the supervisor added.