This points to risks from further valuation losses, especially for leveraged and liquidity-constrained institutions. Higher interest rates are supporting euro area banks' profitability, with interest margins improving. Bank profitability has in fact steadily strengthened throughout 2022 mainly due to lower operating expenses and higher operating income.
From a financial stability perspective, they have a number of attractive features, not least the fact that the credit risk stays with the originator, which strengthens the incentives for prudent risk management; generally they are also more transparently accounted for in banks’ published accounts than securitisation transactions.