Despite the economic recovery, the European Central Bank (ECB) believes that there are still dangers to the stability of the financial system – especially on the housing market. In the short term, the risks associated with the pandemic would have decreased, the ECB said in its financial stability report published on Wednesday. However, the risk of price corrections has increased, especially in residential property markets in countries where valuations were already elevated before the crisis. “The housing markets in the euro zone have grown rapidly, with little evidence that credit standards have been tightened in response,” warned ECB Vice President Luis de Guindos. The central bank points out that house prices in the euro area rose more rapidly in the second quarter than they have been since 2005. At the same time, there has even been a loosening of the standards for granting mortgage loans. The sharp rise in house prices of around seven percent remains “a cause for concern,” warned the ECB. However, the banks in the euro zone are expecting slightly stricter standards for issuing corporate loans in the autumn quarter, as the latest ECB survey of 146 financial institutions shows. Looking at the economy as a whole, the central bank now sees a significantly lower risk than six months ago that a large number of companies will go bankrupt or banks will fall into the red. “But the risks posed by the pandemic have not completely disappeared,” stated De Guindos. At the same time, the central bank conceded that the negative effects of the low interest rate policy on financial institutions could “worsen over time”. Recently, more and more voices have been heard from the banking industry that the central banks should initiate a departure from their ultra-loose line in view of the strong inflation.
Financial markets – housing market poses dangers – economy
