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ECB says risks to euro-area financial system have increased

ECB says risks to euro-area financial system have increased

The European Central Bank said Monday that risks to the euro zone financial system had increased amid the U.S. subprime mortgage crisis _ but that large financial institutions had preserved capital reserves to buffer them against further trouble.
Still, the bank warned the outlook for financial stability was "highly uncertain."
In its twice-yearly report on the stability of the banking system in the 15 countries that use the euro, the bank said some of the risks it feared had materialized _ such as the deterioration of the U.S. housing market and a broadening of credit market stress.
"The risks to euro area financial system stability on balance had increased compared to the situation six months before," the ECB said in a statement.
"Looking forward, the euro area financial stability outlook is highly uncertain and a lot will depend on how economic conditions _ especially in the U.S. housing market _ develop and how banks respond to an operating environment which is much more challenging.
The ECB said it was probable any adjustment process within the financial system could be prolonged as banks attempt to strengthen their liquidity and capital positions.
But it noted that for large financial instituations "capital buffers largely remained intact."
Like their U.S. counterparts, European banks have written off billions in exposure to securities backed by mortgages made to people with shaky credit, and several have had to raise new capital from investors.
The ECB noted that so far, the availability of bank credit to households in the eurozone and nonfinancial corporations has not been significantly affected by the financial market turbulence _ a contrast with the United States and Britain, where mortgage lending has tightened.
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