The European authorities have taken a number of actions over recent years to alleviate financial system risks, including increased support from the ECB and ongoing progress in unifying the system of banking regulation. More generally, the condition of the European financial sector has been gradually improving in a number of respects.
Non-performing loans of European banks are still high, but they have been falling for two years mainly in some of the periphery countries (Graph 1). Bank profitability has picked up a bit and banks are now better capitalised. And stronger balance sheets have enabled banks in the euro area to make some gradual increases in their lending to businesses and households.