On the positive side, the EU economy proved to be more resilient than expected in the face of the large negative terms-of-trade shock from Russia’s war in Ukraine and growth forecasts for 2023 were revised upwards. However, developments last autumn in the UK gilt market and, more recently, in the US and Swiss banking sectors remind us of the need to remain vigilant in regard to vulnerabilities in a challenging and rapidly changing macro-financial environment. In this context, let me explain the ESRB’s view on the key risks affecting the European Union’s financial sector. The aforementioned ESRB Warning set out four key risks to EU financial stability:3 • The challenging macroeconomic outlook coupled with elevated geopolitical tensions underscores the importance of a prudent management of credit, market and funding risks in the banking business. • An environment of still subdued growth prospects and elevated inflation may put firms' and households’ balance sheets under stress. • Vulnerabilities in the non-bank financial sector could trigger asset price corrections and amplify volatility. • System-wide cyber incidents remain a severe threat. The Warning has promoted a closer monitoring of risks by national and EU authorities that are members of the ESRB. Let me now offer an update of our current assessment. The EU banking sector remains strong in terms of its aggregate capital and liquidity position.
11.05.2023  The financial system: current situation and challenges IE University – Banco de España – Federal Reserve Bank of Saint Louis Conference: Current Challenges in Economics & Finance Madrid Pablo Hernández de Cos Governor  Thank you very much to the organisers for inviting me to this conference. Today, I will be addressing you in my capacity as Chair of the Advisory Technical Committee of the European Systemic Risk Board (ESRB),1 a role which brings a deep EU-oriented perspective, complementary to my regular responsibilities as Governor of the Banco de España and member of the Governing Council of the European Central Bank. The macrofinancial risk landscape and the banking sector The macrofinancial risk landscape has changed in recent months and continues to evolve. In a relatively short period of time we have moved from low inflation and low interest rates to persistent high inflation and rising interest rates. This shift poses new and enhanced risks to financial stability. To heighten awareness of these risks the ESRB adopted a Warning2 on vulnerabilities in the EU financial system in September 2022. This is the first general warning (i.e. addressed to all EU Member States) that has been issued by the ESRB since its establishment in 2010. Over the last seven months some economic developments have surprised to the upside, while some vulnerabilities timely identified in the Warning have come to the fore.