month, the stock markets in the euro area had broadly stabilised after a strong recovery in 2009, which mainly reflected the impact of improving macroeconomic news and better corporate earnings prospects. chart 9 on slide 14 shows that most conventional valuation measures, such as the long - term price - earnings ratio do not suggest that valuations are particularly high by historical standards. but there is a risk of heightened financial market volatility, if expectations of macroeconomic outcomes are disappointed. i would also like to briefly comment on the current state of the euro area securitisation markets. the securitisation markets were rendered dysfunctional by the financial crisis for a variety of micro and macroeconomic reasons. efforts are being made both by the financial industry and the policy - making community to address the most important micro issues, including the lack of transparency, product complexity and inappropriate incentives in the originate - to - distribute model. however, in recent months there have been some, albeit nascent, signs of improvement in securitisation activity, in part supported by a narrowing of spreads on securitised products ( i. e. yield on securitised products over libor ). the narrowing spreads, which reflects the compensation investors are demanding for holding these assets, could bring prices closer to levels where issuance of abs securities makes economic sense. this has been indicated in the responses to ecb bank lending surveys and in lower retention rates by banks for newly - issued abs. while it is difficult to disentangle the relative contribution of micro and macro factors to the improvement, it seems clear that the improved economic outlook has played an important role. iv. overall assessment let me now conclude with the overall assessment of the identified risks to euro area financial system stability ( slide 15 ). although the main risks to euro area financial stability essentially remain the same as those to which attention was drawn in the last issue of the fsr, their relative importance has changed significantly over the past six months. ultimately, the significance of risks for financial system stability must be judged by the probability of their materialisation in combination with their likely impact, both on the financial system and on the broader economy, in the event that they do materialise. by this criterion the two most important risks for euro area financial stability at the current juncture are, first, the possibility of concerns about the sustainability of public finances persisting or even increasing with an associated crowding - out of private investment and, second, the possibility that adverse feedback between

write - downs on securities exposures were the main contributor to the substantial losses for, and capital drains on, euro area banks in 2008. going forward, while the recovery in securities prices makes valuation write - backs on securities holdings more likely in 2010, write - downs on loans are expected to remain relatively high. however, in contrast to the uncertainties created by securities valuations in 2008 and 2009, banks should largely be in good positions to forecast the loan losses facing them, using their internal models, and they should thus be in a better position to manage the potential future write - downs without unexpected capital shortages. the second risk that we have identified within the euro area financial system relates to vulnerabilities of financial institutions associated with concentrations of lending exposures to commercial property and to central and eastern european ( cee ) countries. you may recall that, in the december issue of the fsr, we drew your attention to these two types of exposures. since then, in the commercial real estate sector, prices and rents have continued to fall in most euro area countries, although at a moderating pace. reflecting this deterioration, estimates of losses facing banks on their commercial property loan portfolios had been revised upwards by almost 50 % over the past six months, as shown in chart 7 on slide 12, and concerns remain about concentrations of such exposures among some euro area banks. this increase in estimated losses on commercial property loans is expected to more than offset the recovery in the valuations of commercial mortgage - backed securities held by banks in the euro area. as regards banks ’ exposures to the cee region, since december, the economic outlook in the region has improved. however, new vulnerabilities have emerged, especially a broadbased deterioration in the fiscal positions in a number of non - euro area eu countries, a number of which are currently under excessive deficit procedures. as chart 8 on slide 13 illustrates, it needs to be kept in mind that the stock of outstanding foreign currency loans in these countries, while no longer increasing, remains sizeable, which makes the quality of exposed banks ’ assets vulnerable to exchange rate risks. given that the exposures to the cee region are rather concentrated among some euro area countries ’ banking sectors, the risks remain material in these cases. the third risk that has been identified within the euro area financial system is that of heightened financial market volatility if macroeconomic outcomes fail to live up to expectations. until the increase in volatility experienced this