With euro zone economy stumbling this year, risks to financial stability are on ...
FRANKFURT - With euro zone economy stumbling this year, risks to financial stability are on the rise, the European Central Bank said on Wednesday, highlighting a long list of vulnerabilities from real estate bubbles to high government debt and Brexit.
“Challenges to financial stability increase amid downside risks to the economic outlook,” the ECB said in a biannual Stability Report. “Should downside risks to growth materialize, financing costs for vulnerable sovereigns are likely to increase which may unearth debt sustainability concerns.” Pointing to another risk, the ECB said banks would likely generate a return on equity of around 6% over the next two to three years, with a large share of lenders unable to earn the cost of equity or the 8-10% expected returns required by investors.
To slow the rise, the ECB raised the prospect that it could force banks to hold more capital, topping up national measures, such as countercyclical buffers.
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