Given the worsening global geopolitical economic situation, amidst armed conflicts and financial imbalances, European authorities are warning of a series of risks to financial stability.
Warnings are made in the Joint Committee’s latest report for autumn 2024 of the three European Supervisory Authorities: the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA).
In the document, the ESAs assess the risks and vulnerabilities of the European Union (EU) financial system and highlight the continued high economic uncertainty affecting the region and the world. They warn the supervisors of the member countries of the regional bloc about the destabilization of the markets that has occurred in the last three months.
The three organizations put the focus in the current global war environmentreferring particularly to the war between Russia and Ukraine and the worsening armed conflict in the Middle East.
“Geopolitical risks influence European insurers’ risk assessment, pricing decisions and coverage offerings, as well as investment strategies,” the document states. It is therefore recommended to maintain close surveillance of financial markets and strong coordination between countries to maintain supervisory efforts.
In this sense, they consider that Geopolitical tensions could end weakening economic conditions and reduce demand for products, which in turn could lead to losses in investment portfolios.
“Markets are increasingly nervous about the economic outlook and political developments, as evidenced by the fall in equity valuations in early August (the so-called Black Monday) and market volatility around the recent European and French elections,” commented ESMA President Verena Ross.
“We continue to see risks linked to liquidity mismatches, particularly in the real estate sector, and a deterioration in asset quality linked to interest rate, credit risk and valuation issues,” Ross added, highlighting how banks are They had to take on new risks and in a weak economic environmentwhich led to stricter lending standards.
At this point, the AES report contrasts the situation that occurred in this third quarter of 2024 with what was experienced at the beginning of the year, when There was less market volatility and a “soft landing” for the economy was expected.
However, recent developments show that markets remain highly sensitive, particularly to interest rate developments, deteriorating credit risk and political and electoral news. There remains a high risk of corrections in a context of fragile liquidity in equity and other markets.
ESMA Report.
Despite the uncertain outlook, European authorities They just cut interest rates. As was done a few days ago in the United States, the European Central Bank approved On September 12, a new cut of 25 basis points in the interest rate was made, the second so far this year.
In this regard, financial institutions and supervisors are warned that they must remain prepared. to address the impacts of persistent high interest rates will have on the real economy. He also advises be alert to the impact of inflation.
Given this situation, the AES recommendations to financial institutions include the application of a series of policy measures, which are based on the idea of ”being flexible and agile and having adequate plans and processes to face multiple and unexpected challenges in the short term.”
In this way, the situation in Europe does not look different from that in the United States, where uncertainty also prevails in the face of political circumstances arising from the upcoming elections and economic indicators. As reported by CriptoNoticias, There are strong fears of a possible recession and investors are increasingly turning their eyes to assets like gold and bitcoin (BTC).
