InsiderEconomyOverly positive economic projections may be misleading

Overly positive economic projections may be misleading

Eurozone Bank supervisors express concerns over shortages in 8 bank sectors which subsequently cause gaps in credit risk assessment.

Member of the European Central Bank (ECB) supervisory board Elizabeth McCaul revealed that although the economy appears to show signs of recovery due to an increase in people travelling and shopping, there are indications that these positive signs are misleading.

As noted by McCaul, a common bank practice is using artificial economic predictions, which only cover a limited number of possible scenarios for future damages.

Therefore, such predictions fail to indicate the full extent of financial uncertainty.

Additionally, McCaul explained that insufficient practices have been adopted by banks regarding their strategic planning during COVID-19.

Such practices include infrequent updates and overly optimistic future predictions.

McCaul reassured that the ECB will carry out on-site checks in order to detect instances of potential credit risk.

She emphasized that it is of upmost importance for banks to properly assess credit risk.

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