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ECB Financial Stability Review -- 9-DEC-2010

ECB Financial Stability Review -- 9-DEC-2010

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Published by FloridaHoss
Financial stability can be defi ned as a condition in which the financial system – which comprises financial intermediaries, markets and market infrastructures – is capable of withstanding shocks and the unravelling of financial imbalances......
Financial stability can be defi ned as a condition in which the financial system – which comprises financial intermediaries, markets and market infrastructures – is capable of withstanding shocks and the unravelling of financial imbalances......

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Published by: FloridaHoss on Dec 14, 2010
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11/09/2011

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The earnings of most euro area large and complex
banking groups (LCBGs) continued recovering in
the
rst three quarters of 2010 as a whole, mainly
driven by further buoyant net interest income,
on average lower, albeit in many cases still
high, loan loss provisions and a steady stream
of fee and commission income. The regulatory
capital ratios of most LCBGs also increased
slightly in the second and third quarters of 2010,
supported by retained earnings and banks’
efforts to raise capital. This notwithstanding,
many challenges remain and new sources of risk
have emerged. As indicated by the persistence
of market concerns with respect to sovereign
credit risk in some euro area countries and the
large re
nancing needs of euro area banks over
the next few years, banks’ funding conditions
remain an area of vulnerability. Tensions related
to sovereign credit risk have hampered access to
funding by some euro area banks in wholesale
markets and, despite recent signs of improvement
in the euro money market, limited access to the
interbank market continues to render some euro
area banks too reliant on liquidity provided by
the Eurosystem. Regarding LCBGs’ earnings
outlook, the risk that pro
tability may not
prove sustainable in the period ahead remains,
owing to volatile market conditions, sluggish
demand for credit and possible upward pressure
on funding costs. Moreover, a still subdued
economic growth outlook and persistent pockets
of weakness in the banking sector risk the
emergence of multifaceted and negative feedback
loops, involving
scal imbalances and weaker
macroeconomic conditions.

4.1 FINANCIAL CONDITION OF LARGE

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