Assessing real estate risks and vulnerabilities: Hidden cracks in the financial system?

The European financial system faces significant risks from excessive bank lending to the real estate sector. Historical trends show a strong link between real estate credit booms and banking crises. Current data indicate that real estate loans constitute a substantial share of banks' corporate loan portfolios, with varying risk levels across countries. Key drivers include expansionary ECB policies and regulatory incentives favouring mortgage lending. Strengthening oversight, improving data collection, and adjusting regulations are essential for financial stability.