Euro Area Policies: Financial System Stability Assessment

Summary

The euro area financial system had proven resilient through multiple shocks, supported by significant bank capital and liquidity buffers. While nonbank financial intermediation (NBFI) has expanded rapidly, diversifying the financial landscape, renewed efforts to create deeper and more integrated markets remain hindered by national fragmentation. The sector is currently experiencing heightened volatility. At the outset of the FSAP, inflation was declining, monetary policy easing, and economic recovery was gradually gathering strength. However, geopolitical tensions and trade policy uncertainty have since clouded the outlook, amplifying financial market volatility.