However, when combined with an economic downturn, the drought caused a 40% increase in dairy loan defaults over four years, before returning to levels similar to today. This result illustrates the importance of nonlinearities in the financial impacts of climate change. Internationally, our central banking peers have also recognised the need to better understand the financial stability risks posed by climate change.
There is also evidence of an acceleration of the process of restructuring the banking sector in some euro area countries, although really pan-European mergers and acquisitions have hardly taken place. Finally, some evidence also points to a reduced "home bias" in investors' portfolios since the start of Stage Three of EMU.