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ESRB Warning
Warn­ing of the Eu­ro­pean Sys­temic Risk Board (ES­RB) of 22 Septem­ber 2022 on vul­ner­a­bil­i­ties in the Union fi­nan­cial sys­tem

Given the increase in systemic risks to financial stability, the ESRB considers it necessary for private sector institutions, market participants and relevant authorities to continue to prepare for materialisation of tail-risk scenarios. Preserving or enhancing the resilience of the Union’s financial sector remains essential so that the financial system can continue to support the real economy if and when financial stability risks materialise.

Credit institutions can act as a first line of defence by ensuring that their provisioning practices and capital planning properly account for expected and unexpected losses that may be caused by the deterioration in the risk environment. This includes proactively and regularly adjusting their own capital projections under baseline and adverse scenarios.

Complementing credit institutions’ prudent risk management practices, micro- and macroprudential capital buffers that are consistent with the prevailing level of risk help ensure banking sector resilience. Preserving or further building up macroprudential buffers would support credit institutions’ resilience and enable the authorities to release these buffers, if and when risks materialise and negatively impact credit institutions’ balance sheets.

Financial stability risks beyond the banking sector should also be addressed. This requires tackling vulnerabilities and increasing the resilience of non-bank financial institutions and market-based finance.

Beyond the financial sector, liquidity strains for non-financial corporations participating in the energy derivatives markets also need to be tackled. However, this should not come at the cost of relaxing prudential requirements for central clearing systems.