European Systemic Risk Board Issues First Ever “General Warning” About “Financial Stability Risks”

The European Systemic Risk Board is essentially an offshoot of the European Central Bank. And central banks are normally the last to admit that a crisis is around the corner, if not already here. 

The European Systemic Risk Board (ESRB), an advisory body set up in the wake of the Global Financial Crisis to monitor the macro-prudential risks bubbling below the surface of Europe’s economy, issued a “general warning” yesterday (Sept. 29) about the financial system. It is apparently the first time the body has taken such a drastic move since its creation in 2010, when Europe was in the maw of the sovereign debt crisis, and it comes just a day after the Bank of England bailed out highly leveraged pension funds.

Given that the ESRB lacks (in Wikipedia’s words) “juridical personality,” it relies on the European Central Bank (ECB) for both hosting and financial support. The board’s members include representatives from the ECB, national central banks and supervisory authorities of EU member states, and the European Commission. And the chairwoman of the board is Christine Lagarde. In other words, it speaks with the full authority of the EU’s two most powerful institutions, the Commission and the ECB.

Crisis Already Here

We are primarily funded by readers. Please subscribe and donate to support us!

Another reason this is important is that central banks are normally the last to admit that a crisis is around the corner. In fact, when they finally sound the alarm, it means the damage is already done and the crisis — which they invariably helped create — is already here. In fact, based on the date at the top of the 15-page document (Sept. 22), it seems to have taken the ESRB a full week to get round to publishing the conclusions of its meeting. Which is ironic given the apparent gravity of its findings. Take these two sentences from the opening paragraph:

“[T]he probability of tail-risk scenarios materialising has increased since the beginning of 2022 and has been exacerbated by recent geopolitical developments. Risks to financial stability may materialise simultaneously, thereby interacting with each other and amplifying each other’s impact.”

What isn’t mentioned, of course, is that those recent geopolitical developments include the European Commission’s mind-watering decision to sanction its most important energy provider, which has, all too predictably, eviscerated Europe’s economy. Following the sabotage of Nordstream 1 and Nordstream 2 earlier this week, the EU is almost totally cut off from Russian gas and it doesn’t have an alternative supplier that can remotely fill the void. The price it will pay for this is likely to be fiendishly high, including in the financial sector and markets.

www.nakedcapitalism.com/2022/09/european-systemic-risk-board-just-issued-its-first-ever-general-warning-about-rising-risks-in-europes-financial-system.html

Views:

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.