Europe | Cockroaches in Europe?

Summary

The risk of a financial crisis stemming from private credit in Europe is low for now, according to the ECB. This market remains small, and banks’ exposure is residual. However, other risks are being flagged, such as the conflict in the Middle East and its potential second-round effects.

Key points

• Key points:
• The private credit market in Europe is still small compared with that of the United States, which amounts to USD 1.5 trillion.
• European banks’ exposure to private credit is residual, at around 0.2% of their assets, reducing the risk that a deterioration in this market could become a solvency problem.
• European banks’ direct exposure to the conflict in the Middle East is limited, at around 0.6% of their assets, with second-round effects being the most relevant risk.
• Globally, more than half of financial assets are held by non-bank intermediaries, making it necessary to assess financial stability from a broader perimeter.

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