Asset prices and banking stability

The purpose of the report is to investigate the relationship between the structure of the balance sheet of banks and the prices of various assets. The report identifies the main channels through which banks would be affected by a fall in these asset prices: credit risk, market risk, reduction in commission income, re-capitalisation of subsidiaries and the 'second round' effects deriving from the impact on the macroeconomic environment and banks' funding conditions.

The main finding of the report is that a downward movement in the real estate market presents a greater risk to banks than a stock price fall. EU supervisory authorities have not, however, identified a major threat to financial stability.

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