On 12 September 2022, the three European Supervisory Authorities (EBA, EIOPA, and ESMA) published their Autumn 2022 joint risk report. They advise national supervisory authorities, financial institutions and market participants to prepare for upcoming challenges. The document indicates that the deteriorating economic outlook, high inflation and rising energy prices have increased the vulnerability of financial sectors.
The report explains that, among other things, the Russian invasion of Ukraine caused a rapid deterioration of the economic outlook. The war caused energy and commodity prices to rise, adding to the imbalance between supply and demand. The risk of persistent inflation and stagflation has increased.
The report notes that after a long period of low interest rates, central banks are tightening monetary policy. The combination of higher financing costs and lower economic output may put pressure on government, corporate and household debt refinancing.
The European Supervisory Authorities recommend the following actions:
- Financial institutions and supervisory authorities should monitor the impact of inflation risk.
- The impact of further increases in interest rates and of potential sudden increases in risk premia on financial institutions and market participants should be closely monitored.
- Financial institutions and supervisory authorities should continue to carefully manage environmental risks and cyber risks to address threats to information security and business continuity.
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