(...)The main risks for the euro area financial system include the possibility of:
*concerns about the sustainability of public finances persisting or even increasing with an associated crowding-out of private investment; and
*adverse feedback between the financial sector and public finances continuing.
Other, albeit less material, risks identified outside the euro area financial system include the possibility of:
*vulnerabilities being revealed in euro area non-financial corporations’ balance sheets, because of high leverage, low profitability and tight financing conditions; and
*greater-than-expected euro area household sector credit losses if unemployment rises by more than expected.
Within the euro area financial system, important risks include the possibility of:
*a setback to the recent recovery of the profitability of large and complex banking groups and of adverse feedback with the provision of credit to the economy;
*vulnerabilities of financial institutions associated with concentrations of lending exposures to commercial property markets and to central and eastern European countries; and
*heightened financial market volatility if macroeconomic outcomes fail to live up to expectations. (...)
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