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ECB Says Non-Banks Raised Exposure To Credit, Exchange Rate Risks

The euro area financial stability environment remains challenging and non-banks have increased their exposure to riskier assets to address profitability challenges, the European Central Bank said in its Financial Stability Review released Wednesday.

The bank noted that investment funds and insurers increased their investment in high yield securities. The search for yield led them to assets of emerging market economies.

"While the low interest rate environment supports the overall economy, we also note an increase in risk-taking which warrants continuous and close monitoring", ECB Vice-President Luis de Guindos, said.

The central bank said signs of excessive risk-taking in some sectors require monitoring and targeted macro-prudential action in some countries.

Although banks increased their resilience, they have made limited progress in improving profitability. Return on equity of euro area banks is expected to face further pressure from both a weaker economic outlook and persistent cost inefficiencies and overcapacity.

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