Lucas Papademos: ECB Financial Stability Review June 2007 Opening remarks by Mr Lucas Papademos, Vice President of the European Central Bank, at the press briefing on the occasion of the publication of the June 2007 ECB Financial Stability Review, Frankfurt am Main, 15 June 2007. * I. *  *  Introduction  My colleagues and I welcome you to today’s press conference on the occasion of the publication of the June 2007 edition of the ECB’s Financial Stability Review. The financial stability assessment contained in the Review has been prepared with the close involvement of the ESCB Banking Supervision Committee. It is based on information that was available up until 11 May 2007, the “cutoff” date for this Review. The primary objective of the semi-annual ECB Financial Stability Review is to review the main sources of risk and vulnerability for euro area financial system stability and to provide a comprehensive assessment of the capacity of the euro area financial system to absorb adverse disturbances. In addition to the financial stability assessment, the June 2007 edition of the Review addresses several topical issues in 17 boxes and it also includes five Special Feature articles. In my introduction, I will first focus on risks and vulnerabilities we have identified in: (i) the external environment; (ii) global financial markets; (iii) the euro area corporate and household sectors; and (iv) the euro area financial institutions. I will then discuss some potential risk triggering factors and will conclude with an overall assessment of the outlook for financial stability. 2.
Comparing the current assessment with that presented in the December 2006 FSR, the main scenario for euro area financial stability remains broadly favourable:  BIS Review 69/2007  5  •  The current macroeconomic environment is benign and global and euro area economic activity it is expected to remain robust;  •  In February and March 2007, the resilience of the financial system was tested by the third significant burst of market volatility in two years, which it comfortably weathered;  •  Euro area credit quality, overall, remains high and should be underpinned by a favourable economic outlook;  •  Pockets of vulnerability in the euro area household and corporate sectors have most likely increased, but, on average, financial positions remain sound;  •  The profitability of euro area financial institutions further improved and solvency is comfortable relative to regulatory requirements.