When the yin meets the yang: resilience in gloomy times

How are financial markets reacting to higher rates, a sluggish economy and geopolitical tensions? Should we worry about property markets? Our host Stefania Secola puts these questions to financial stability expert John Fell on The ECB Podcast. The views expressed are those of the speakers and not necessarily those of the European Central Bank. Published on 2 December 2023 and recorded on 27 November 2023. In this episode: 01:08 – Financial markets’ optimism is put to the test How are financial markets reacting to the new environment of high interest rates, a sluggish economy and rising geopolitical tensions? 06:00 – The conundrum of banks’ increasing profits and stagnant valuations Banks’ profits are at multi-year highs, yet their valuations haven’t changed much. What factors explain this? 10:31 – Real estate markets are a source of concern Residential and commercial property markets are feeling the impact of higher interest rates. What are the implications for banks and financial stability? 16:06 – The yin and the yang of financial stability As the credit cycle turns, and with several vulnerabilities unravelling, can resilience compensate? 18:22 – Conclusion Additional material: Financial Stability Review, November 2023 https://www.ecb.europa.eu/pub/financial-stability/fsr/html/index.en.html FSR Box 5 on Euro area bank fundamentals, valuations and cost of equity https://www.ecb.europa.eu/pub/financial-stability/fsr/html/ecb.fsr202311~bfe9d7c565.en.html#toc27 Special feature B on Real estate markets in an environment of high financing costs https://www.ecb.europa.eu/pub/financial-stability/fsr/html/ecb.fsr202311~bfe9d7c565.en.html#toc40 The ECB Podcast: Financial stability and bank runs, June 2023 https://www.ecb.europa.eu/press/tvservices/podcast/html/ecb.pod230607_episode60.en.html European Central Bank www.ecb.europa.eu