This source of vulnerability may arise as institutional investors hold a growing proportion of overall financial assets. In the euro area, their possible impact on equity market appears so far rather limited as their equity holdings only represent 14% of total euro area stock market capitalisation.
However, some years ago there has been some evidence that the slump in equity prices led some insurance companies to liquidate part of their equity portfolios in order to reduce regulatory capital need. Such forced sales would have contributed to adverse market dynamics by driving down equity prices even further, thereby also affecting banks’ equity portfolios.