“Uncertainty has subsided, and all evidence point to the economic system recovering,” Andrea Enria, the European Central Bank’s (ECB) chief supervisor, said on Friday.
“When the bulk of the government’s emergency aid is withdrawn, banks’ asset quality will worsen, but by less than previously projected, as this is difficult to quantify.”
“Pre-pandemic evidence of risk mispricing was already there in some market segments, and hunger for financial leverage and financial complexity was also expanding.”
“If these risks are not appropriately handled, interconnectivity with other financial organizations might expose the banking sector to potentially huge direct and indirect losses.”
“A prominent example is the resurgence of collateralized loan obligations.”
“Vulnerabilities may be developing among a group of supervised organizations that were particularly active on the market,” says the report.
“According to the most recent studies, pricing discrimination in relation to underlying credit quality is alarmingly low.”
“If investors expect inflationary pressures to endure, asset values may experience a sharp drop.”
The EUR/USD exchange rate was last noted at 1.1826, down 0.16 percent on the day and flirting with multi-month lows of 1.1823./n
