On May 26, the European Central Bank (ECB) published its 2020 bi-annual financial stability review (the Review).

In the Review, the ECB provides an overview of the potential risks to financial stability in the EU. A summary of the ECB’s key points are set out below:

1. the COVID-19 pandemic prompted extreme financial market sell-offs and stress;
2. corporations and households face lower income and rising debt burdens;
3. fiscal measures provide essential support to the EU economy and its participants, but they have increased the public debt burdens;
4. EU banks are well capitalized with reasonable liquidity buffers, but are nonetheless likely to face significant losses and further pressure to profitability as a result of the COVID-19 pandemic; and
5. policy measures alleviate near-term risks to financial stability, but certain medium-term vulnerabilities have risen, including tighter financial conditions and fragile functioning in some markets, and a significant increase in debt burdens.

The Review is available here.