Furthermore, our analysis6 shows that there are only limited spillovers from the monetary policy of the Federal Reserve to euro area inflation and output. This suggests that ECB monetary policy actions are, by and large, able to shield the euro area economy from spillovers from US monetary policy. But undoubtedly, there is evidence that US monetary policy is a driver of a “global financial cycle”.7 In step with such a financial cycle the risks to euro area financial stability can change as well. Current financial stability concerns in the euro area As you know, our characterisation of the main risks to euro area financial stability has remained broadly unchanged over the recent years. We see four main risks: The most prominent risk stems from the possibility of a disorderly increase of global risk premia. The second risk is related to renewed debt sustainability concerns, for sovereign debt in particular. The third risk is that banks’ intermediation capacity may be hampered by their continued low profitability. Finally, we are of the opinion that possible liquidity strains in the investment fund sector constitute a growing risk. All four risks are intertwined and would have, if they were to materialise, the potential to be mutually reinforcing. In 2018, a growing economy and improved banking sector resilience were important positive factors supporting financial stability. Now, however, the assessment is affected by a weakening economic growth outlook for the euro area.

Forbes, K., Reinhardt, D. and Wieladek, T. (2017), “The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies”, Journal of Monetary Economics, Vol. 85, pp. 1-22. Georgiadis, G. (2016), “Determinants of global spillovers from US monetary policy”, Journal of International Money and Finance, Vol. 67(C), pp. 41–61. Iacoviello, M. and Navarro, G. (2018), “Foreign Effects of Higher U.S. Interest Rates”, International Finance Discussion Papers, No 1227, Board of Governors of the Federal Reserve System. Jarociński, M. and Karadi, P. (2018), “Deconstructing monetary policy surprises: the role of information shocks”, Working Paper Series, No 2133, ECB. Kim, S. (2001), “International transmission of U.S. monetary policy shocks: Evidence from VAR’s”, Journal of Monetary Economics, Vol. 48(2), pp. 339–372. Miranda-Agrippino, S. and Rey, H. (2018), “US Monetary Policy and the Global Financial Cycle”, NBER Working Papers, No 21722. Neely, C. J. (2015), “Unconventional monetary policy had large international effects”, Journal of Banking & Finance, Vol. 52(C), pp. 101–111. Rey, H. (2018), “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence”, NBER Working Papers, No 21162. Rogers, J., Scotti, C. and Wright, J. (2014), “Evaluating asset-market effects of unconventional monetary policy: a multi-country review”, Economic Policy, Vol. 29(80), pp. 749–799.123456789 1 Likewise, the response of financial variables within one day of a policy announcement might not be a good  measure of persistent spillover effects. In fact, a sufficiently long horizon is crucial to capture the spillovers that are economically relevant. Results over shorter horizons typically differ.