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Report on risks and vulnerabilities published by ESAs

The Joint Committee of the European Supervisory Authorities (ESAs) has published
its second bi-annual report on risks and vulnerabilities in the European
Union's (EU) financial system.

The report identifies the following key cross-sectoral risks to the stability of
the European financial system:

  • the weak macro-economic outlook;
  • the protracted low-interest rate environment;
  • EU financial sector fragmentation;
  • the increased use of collateral;
  • a lack of confidence in balance sheet valuations and risk disclosures - clarification of reporting and disclosure formats is required as items were frequently not precisely described and offered additional room for potential misrepresentation; 
  • a loss of confidence in financial benchmarks; and
  • the operational risk of cyber attacks - several cyber risk incidents have occurred since the previous report.  While recognising that some amount of operational risk is unavoidable and that firms are required to hold capital against operational risk, the report stresses that operational risk capital is not a substitute for sound risk management.  Further supervisory work in this area is under active consideration.

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