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ECB Says Eurozone Financial Stability Situation Positive, Risks Remain

Euro area financial stability situation remains positive, supported by strong economic growth, but the threat of an abrupt market correction due to global risks remain, the European Central Bank said in a report released Wednesday.

"Improved economic conditions underpin the assessment that there is no generalized overvaluation in euro area financial markets," the ECB's latest Financial Stability Review said.

"Nevertheless, global risks in particular may trigger financial asset market corrections with negative repercussions on financial stability."

The FSR identified four main risks to euro area financial stability over the next two years.

These include an abrupt and sizeable repricing of risk premia in global financial markets, the continued weak profitability prospects for the banking sector, a potential re-emergence of public and private sector debt sustainability concerns and liquidity risks in the nonbank financial sector.

"Continued risk premia compression and signs of increased risk-taking behavior in financial markets are sources of concern as they may sow the seeds for large asset price corrections in the future," the bank warned.

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