Conflict between Russia, Ukraine putting financial stability at risk: ECB

FRANKFURT: According to the European Central Bank (ECB), financial stability conditions in the eurozone have deteriorated as a result of the prolonged conflict between Russia and Ukraine, which is driving up prices and raising inflation and growth risks.

As per reports, the European Central Bank cautioned on Wednesday that "vulnerabilities may develop" due to the uncertainties of the conflict and the shifting expectations of policy normalisation in advanced economies. 

ECB Vice President Luis de Guindos said, the war in Ukraine has caused "immense human suffering."  As the violence has damaged all sectors of economic activity and financing conditions, financial stability concerns have escalated, he said. 

The ECB said in a news release that "prices for commodities and energy have remained elevated and volatile, causing some stress in derivatives markets for these products."  "Should the GDP forecast worsen more and/or inflation turn out to be much higher than expected," it stated, "certain assets remain at risk of further drops."

Meanwhile, non-financial firms in the eurozone are at risk of default due to increased input prices and sluggish economic growth. The ECB advised that a more effective capital buffer mechanism might assist increase the financial system's resilience and that stronger regulation to address risks in the non-bank financial sector be implemented.

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