Banks and states prepared for the next crisis? The ECB is reaching its limits.

Central banks around the world have increased interest rates in recent months to combat inflation. The central banks have now taken a break for the time being, but the risks to the financial system remain. Investors who took high risks during times of low interest rates are now faced with rising interest rates, creating an unexpected situation. These are the issues raised by Financial Stability Board (FSB) Chairman Klaas Knot at a European Systemic Risk Board (ESRB) conference. It turns out that financial markets are in the middle of a transition that can have various effects.

Analysis of the impact on the market and the financial sector

The ECB's increase in key interest rates to four percent within 15 months surprised many investors and banks. This could lead to a slowdown in economic activity as higher interest rates cause businesses and consumers to borrow less. This, in turn, could lead to a reduction in investment and consumption, which has a negative impact on economic growth. In addition, financial markets could also become more volatile, which could affect the stability of the financial system.