That is why I expect that the weakened economic situation there will lead, at most, to limited losses for European banks. What is more problematic is the increased interest rate risk. Since last spring we have seen greater volatility in interest rates. Rises in interest rates could lead to immediate valuation losses on debt portfolios.
For example, systemically important banks currently have to value around one-quarter of their fixed-rate debt securities at market prices. The earnings position of European banks has recently improved somewhat – primarily because of higher shares of non-interest related earnings. But in the current weak economic environment, and in view of low interest rates, earnings are still low.