The deteriorating global economic outlook and the geopolitical tensions have increased the risks to financial stability. The sharp decline in interest rates worldwide is improving debt sustainability and helping to contain the rise of macroeconomic risks, although this may lead investors to take excessive risks.
In Italy, the weak economic growth and high level of public debt continue to represent elements of considerable vulnerability. Low interest rates support the ability to repay debts. The share of debt taken on by financially vulnerable households and firms would only increase in the event of particularly adverse macroeconomic events.
Banks are reducing the risk levels of their assets and continuing to strengthen their capital. Further falls in interest rates on loans could have greater effects on profitability than in the past. The solvency ratios and profitability of insurance companies have improved. The balance sheets of Italian insurers are less exposed to risks arising from a protracted period of very low interest rates, if compared with similar companies in other euro-area countries.