ECB, Lagarde’s warning: “We are in a permacrisis, risks for financial stability”

Speaking at the sixth annual conference of the Europen Systemic risk board, the president of the European Central Bank revived the term to describe the “general state of insecurity” in which the Old Continent has been living for years. “Pandemia, energy emergencies, high prices and war in Ukraine” the critical issues, which due to the number of Eurotowers must be addressed by reducing inflation, increasing control over financial companies and regulating cryptocurrencies

“Permacrisis”. The word of the year for the prestigious Collins dictionary is also the one used by Christine Lagarde to describe the situation regarding European financial stability. The ECB president did not mince words in her opening speech at the sixth annual conference of the Europen systemic risk board (Esrb), which in September issued the first general warning in her history. “Pandemia, energy emergencies, high prices and worries about the war in Ukraine” are the factors that the number one of Eurotower identifies as the causes of the “general state of insecurity” in which the citizens of the Old Continent have been living for years now. A series of challenges that must be faced, is his dictat, reducing inflation, increasing control over financial companies and looking at all the gray areas of the global economy. Starting with cryptocurrencies.

financial risks

Speaking at the Frankfurt event through a video message, Lagarde also warned of the growing risks weighing on financial stability in Europe and precisely in the light of these risks, he confirmed his willingness to bring inflation back to the medium-term objective of 2 %. “In September, the Esrb highlighted these critical issues by issuing a general warning. This is the first notice of this type since the creation of the institution in 2010, testifying to the exceptional times in which we live”, explained the number one of Eurotower. He added: “A key message was the crucial importance of ensuring the continued resilience of our financial system especially given the weakening economic outlook.”

The role of banks and beyond

In her speech, Christine Lagarde did not fail to underline the crucial role played by banks in this context. “European institutions, in a robust position when the pandemic hit, must now be careful given today’s weakened economic outlook. It therefore remains important that they make adequate provisions and undertake prudent capital planning,” said the ECB president. Who added: “They should also be attentive to credit risk and remain alert to potential defects in their internal models as the risk evolves”. non-bank loans have taken on an increasing role in the financial system.”The share of non-bank loans in total credit of financial institutions to the real economy has increased from 15% in 2009 to 25% today,” explained the central banker, adding that “if alternative funding sources are to function well, these institutions too must be shock resistant”.

The cryptocurrency node

“Crypto-assets are exceptionally volatile and pose considerable risks to consumers,” Lagarde continued, noting that “after peaking in November 2021, the price of Bitcoin has fallen nearly 75% in the space of a year while just last month we witnessed the chaotic collapse of FTX, a company previously valued at $32 billion.” Hence, explained the president of the ECB, the need for “policy makers, including macro-prudential authorities, to evaluate more and more carefully whether and how the cryptocurrency ecosystem should be regulated”.