The European Central Bank just outlined 4 of the biggest risks to financial stability
- Financial contagion stemming from political uncertainty — "Global risk repricing leading to financial contagion, triggered by heightened political uncertainty in advanced economies and continued fragilities in emerging markets."
- A vicious circle between banks not making much money and not being able to grow — "Adverse feedback loop between weak bank profitability and low nominal growth, amid challenges in addressing high levels of non-performing loans in some countries," says the ECB.
- Debt sustainability — The ECB said that "re-emerging sovereign and non-financial private sector debt sustainability concerns in a low nominal growth environment, if political uncertainty leads to stalling reforms at the national and European levels."
- Investment funds — These funds, which are a supply of capital belonging to a group of investors that are used to buy securities such as stocks, are seen as risk factor. "Prospective stress in the investment fund sector amplifying liquidity risks and spillovers to the broader financial system," says the ECB.