European Authorities Decry ‘Rapid Deterioration of Economic Outlook'

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European Authorities Decry 'Rapid Deterioration of Economic Outlook'

<p>The European Banking Authority (EBA), the
European Insurance and Occupational Pensions Authority (EIOPA) and the European
Securities and Markets Authority (ESMA) on Monday warned financial institutions,
market participants, and national supervisors against "increased vulnerabilities
across the financial sectors."</p><p>A joint committee of the European supervisory
authorities <a href="https://www.esma.europa.eu/press-news/esma-news/esas-warn-rising-risks-amid-deteriorating-economic-outlook">in a statement</a> urged
the industry stakeholders to prepare for challenges ahead.</p><p>The committee in their <a href="https://www.esma.europa.eu/sites/default/files/library/jc_2022_40_autumn_2022_jc_report_on_risks_and_vulnerabilities.pdf">Autumn 2022 Joint Risk Report</a> noted that the -e War
combined with disruption to trades has "caused a rapid deterioration of the
economic outlook".</p><p>These added to pre-war
inflationary pressures, thus increasing the risk of <a href="https://www.financemagnates.com/tag/inflation/" target="_blank">persistent inflation</a> and
stagflation in the continent, they said.</p><p>As a result, the authorities explained, the volatility of
the financial market has increased across the board.</p><p>They explained, "After a long period of
low interest rates, central banks are tightening monetary policy. </p><p>"The combination of higher financing costs
and lower economic output may put pressure on government, corporate and
household debt refinancing while also negatively impacting the credit quality
of financial institutions' loan portfolios. </p><p>"The reduction of real returns through
higher inflation could lead investors to higher risk-taking at a time when rate
rises are setting in motion a far-reaching rebalancing of portfolios."</p><p>Policy Actions</p><p>In the statement, the <a href="https://www.financemagnates.com/tag/esma/" target="_blank">supervisory authorities</a> advised financial institutions and supervisors to continue to be
prepared for a deterioration in asset quality in the financial sector.</p><p>They noted that this preparation should
also cover assets that enjoyed temporary measures designed to cushion the impacts of the COVID-19 pandemic.</p><p>Assets that are vulnerable to dire economic conditions, inflation, and high
energy and commodity prices are also to be accounted for in preparatory efforts.</p><p>"The impact of further <a href="https://www.financemagnates.com/tag/rates/" target="_blank">increases in policy rates</a> and of potential sudden increases in risk premia on financial
institutions and market participants at large should be closely monitored,"
they said.</p><p>Furthermore, they urged financial
institutions to closely monitor the impact of inflation risks and the dangers
they pose to retail investors.</p><p>With regards to the retail investors, they
noted that risk monitoring is particularly more important for crypto-assets and other products for which consumers may not fully understand the level of risks
involved.</p><p>"Financial institutions and supervisors
should continue to carefully manage environmental risks and cyber risks to
address threats to information security and business continuity," the
supervisory authorities added.</p>

This article was written by Solomon Oladipupo at www.financemagnates.com.

Source: European Authorities Decry 'Rapid Deterioration of Economic Outlook'