Some institutions have experienced losses from their holdings of asset-backed securities, in particular as a result of both direct and indirect exposures to US sub-prime mortgage securities. Moreover, a number of banks have faced liquidity pressures as credit lines to special-purpose investment vehicles had to be activated to meet commitments to provide liquidity support and as a result of increased uncertainty about counterparty risk.
Nevertheless, on the whole, exposures to the US sub-prime mortgage market manageable given the capital buffers. After several years of strong profit growth, including strong profitability in the first half of 2007, and with capital bases in excess of regulatory requirements, the shock-absorbing capacity of the euro area financial system – especially the core financial institutions – has been enhanced.