Although the profitability of some European financial institutions is likely to be adversely affected to varying degrees by the recent strains in financial markets, the euro area banking system on the whole should have no major problems in absorbing the impact of recent disturbances.
Looking forward, the most likely scenario is that financial market conditions will normalise progressively over a period of time – which could be protracted depending, among other factors, on the progress made in restoring confidence in the valuation of credit instruments and the creditworthiness of counterparties.