Financial stability risks remain high amid economic and trade uncertainties

The European Central Bank (ECB) has published its November 2025 Financial Stability Review, indicating that vulnerabilities to financial stability remain elevated amid ongoing uncertainties related to geoeconomic trends and tariffs.

Stretched valuations in concentrated asset markets increase the risk of sharp price adjustments. Fiscal challenges in some advanced economies could also test investor confidence.

Euro area banks are resilient, with strong profitability and sufficient capital and liquidity buffers. However, exposures to tariff-sensitive firms and increased funding ties with non-banks could pose risks during periods of stress.

Market sentiment remains vulnerable to sudden shifts due to high valuations, market concentration, and potential deterioration in growth prospects or technological developments like artificial intelligence. Liquidity mismatches and high leverage in some segments could amplify stress.

Concerns over public finances in some economies may lead to strains in bond markets, affecting euro area financial stability through capital flow shifts and currency fluctuations. Euro area sovereigns benefit from lower growth risks and flight-to-safety dynamics but face medium-term risks from fiscal expansion, structural challenges, and external fiscal spillovers.

The corporate and household sectors have improved their balance sheets but remain vulnerable to tariff impacts. Bank exposures to tariff-sensitive firms and interconnectedness with non-banks could undermine loan performance and funding stability in stressed conditions.

Maintaining and strengthening financial resilience is essential. Authorities are advised to uphold existing capital buffers, borrower standards, and implement measures to enhance the resilience of the non-bank financial sector, supporting integrated and stable euro area capital markets.

More information is available on the ECB’s official website.