The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany
Frankfurt (Reuters) - The ECB warns of dangers to the stability of the euro area financial system amid slowdown and the prospect of an even longer period of ultra-low interest rates.
Although low interest rates are supporting the economy, ECB vice-president Luis de Guindos said Wednesday that the semi-annual stability report will be presented. However, a resulting increase in risk appetite could create problems for financial stability in the medium term. The authorities should use every means to prevent such weaknesses. In Germany, banks must already make more provision for risks. In July, the so-called countercyclical capital buffer of 0.25 percent was introduced.
There are two main risks. "Our attention is firstly to the situation of non-banks," said de Guindos. The European Central Bank (ECB) is driving investment funds, insurers and pension funds on the hunt for returns on riskier investments. In addition, according to de Guindos their higher debt. Unexpected course corrections could have consequences for the entire financial system. A second central risk is the profit weakness of banks in the euro area. Their earnings prospects would have deteriorated further. Mergers and acquisitions are useful in this situation. "But this is not a universal solution to the problem of the weak earning power of European banks."
The rising prices for residential real estate are also worrying the ECB. On average, they are overvalued by more than seven percent in the euro area. There are clear differences between the individual countries. The Bundesbank considers prices in German cities to be overvalued by 15 to 30 percent.