There is also uncertainty about the possibility of feedback effects onto the financial system, including questions about what the ultimate impact on the intermediation of credit – both through financial institutions and markets – will be. Moreover, until conditions in the US housing market show signs of improvement, the possibility of continuing tensions in structured credit markets cannot be excluded.
In the period ahead, large euro area banks are likely to face pressure on their revenues on account of lower activity levels in the structured credit markets as well as from a general retrenchment from risk-taking across many business lines. At the same time, the banks are facing increased funding costs.