The European Central Bank (ECB) published its semi-annual Financial Stability Review on 21 May 2025. It provides an overview of potential risks to financial stability in the euro area.

The key conclusions are:

• Shifts in global trade policy lead to sharp increase in uncertainty, causing large spikes in financial market volatility
• Stretched valuations and low non-bank liquidity buffers leave financial markets vulnerable to further shocks
• Escalating trade tensions could adversely affect euro area firms and households, entailing credit risk for banks and non-banks
• Government finances may be negatively impacted by increased defence spending, although boost to growth cannot be excluded