Although the average share of Level 3 assets on the balance sheet of the largest euro area banks is now lower than that of US banks, some banks in the euro area still have high shares of Level 3 assets, if compared with international competitors, hampering further bank consolidation in the EU.
It is crucial that banks have sound and effective valuation and risk management frameworks in place. Therefore, sustained supervisory efforts are needed to identify and address potential problems with banks’ valuation and classification methods.