The European Banking Authority (EBA) has published a report on the risks and vulnerabilities of the EU banking system. The report analyses the main developments and trends affecting the EU banking sector in the second half of 2013 and provides an outlook of the main micro-prudential risks and vulnerabilities.

The main findings of the report, drawn from EU banks and national supervisors, include the following:

• in the light of the EBA’s recapitalisation exercise, capital levels have continued to improve as shown in the EBA’s latest transparency exercise;
• uncertainties about asset valuation continue to persist and remain a fundamental issue in the EU;
• some uncertainties remain with regard to the new regulatory framework, with significant strategic and implementation challenges, as well as the developments on bail-in requirements; and
• certain detrimental business practices carried out by some EU banks have affected consumer confidence and increased reputational risks. In addition, the potential prudential impact of conduct-related redress remains a concern. The EBA states that this will require heightened supervisory oversight and improvements in institutions’ risk management functions, and a more general assessment of the relationship between banks and their customers.

View Risk assessment of the European banking system, 20 December 2013