In the EU, financial sector supervision is on the way to be strengthened in a two-pronged approach. A European System of Financial Supervisors will be established to permit better coordination among national authorities that oversee financial regulation. And a European Systemic Risk Board will be responsible for macro-prudential supervision.
While the fallout experienced by euro area banks was limited, these events have served as a timely reminder of just how much the preservation of financial stability depends on the shock-absorption capacity of the financial system. All the more so in an environment where financing conditions are being tightened to tackle elevated inflation around the world.