The risks to financial stability stemming from the international economy are decreasing but the low volatility observed in the financial markets may be a sign of excessive risk-taking by investors. In the euro area the decisions taken by the ECB Governing Council on 26 October have reduced the uncertainty about monetary policy recalibration.
As growth in Italy continues, the financial vulnerability of households and firms is diminishing and credit quality is improving. The debt service capacity of households and firms should remain strong even if borrowing costs rise considerably.
The resolution of crises at some banks during the summer has greatly reduced systemic risks in the banking sector, leading to a rise in banks' share prices and lower funding costs; the reduction in the stock of outstanding NPLs is gathering pace; overall capitalization of banks has increased. Over the next few months the most significant risks for banks remain first and foremost those tied to the economic outlook: a sharp slowdown in growth would have a negative impact on profitability, which continues to be very low, making it more difficult to raise capital on the markets.