Even small deteriorations in a bank’s performance can sometimes suffice to provoke speculation and negative market reactions. This lack of confidence affects bank lending conditions, both local and cross-border, for firms in the real economy. Banks in the euro area need to respond to these market expectations and uncertainties.
They increase their capital ratios by retaining their earnings, holding off lending and avoiding additional risks. Small and medium-sized firms in peripheral countries are particularly affected by the sustained shortage in credit supply. BIS central bankers’ speeches  1  Key factors for success The comprehensive assessment should contribute substantially to breaking this negative causal chain.