The risks to financial stability posed by developments in the world economy are increasing. Protracted trade tensions are escalating uncertainty and could have negative repercussions on growth. The ending of monetary stimulus in the United States has tightened global financial conditions. In Europe, the EBA's stress tests show that the major banks are solid, although some vulnerabilities remain.
In Italy, the main risks to financial stability stem from low growth and high public debt. The repercussions on the economy of the tensions in the sovereign debt market are being mitigated by the low levels of private sector debt and the high average residual maturity of the public debt, which slows down the transmission of an increase in government securities yields to the average cost of the debt. Large and lasting increases in risk premiums on government securities affect the value of household wealth, curb lending to the private sector, and worsen the liquidity and capital positions of banks and insurance companies.
In the banking sector credit quality has continued to improve as has profitability. Tensions in the sovereign debt market have nonetheless led to a deterioration in liquidity and capital adequacy indicators and to an increase in market risks. The insurance sector is especially exposed to sovereign risk. On average, solvency ratios are well above the minimum requirements; they have, however, recorded a significant reduction.