This week the European Central Bank raised the risk level in one of its four main risk indicators for financial stability from "potential risk" to "medium-level risk".
As a result, three of the four indicators are now on the medium-level risk" point in a three point scale (the final one being "pronounced risk").
The increased risk level was in the public and private debt sustainability sphere.
The reasons behind the up-rating in risk were a potential re-pricing in bond markets and political uncertainty in some countries.
And no, they don’t mean Brexit. For once this is a report from an EU institution that does not big up the risk from Brexit.
Yes, it does say the UK decision to leave adds to the prevailing level of political uncertainty. But it says the "Brexit process itself is currently not one of the main concerns for Euro area financial stability".
Phew! What a relief – as characters in British comic books used to say (usually just before something ghastly happened to them).
It goes further, saying Brexit is "likely to have limited implications for the Euro area economy and financial stability".
And the ECB thinks the risk that the Euro area real economy will face restrictions in accessing wholesale and retail financial services as a result of Brexit "appears limited".
It notes two channels of possible negative impact on financial stability – one being the macroeconomic impact of the (expected) slowdown in the UK economy and its effect on the value of the "relatively modest direct exposure of Euro Area financial institutions to the UK real economy.
The other channel is the potential disruption in the provision of financial services to the Euro area economy from the UK.
While it may be true that at an aggregate level the Euro Area financial sector has limited direct exposure to the UK real economy, we do not live in the aggregate Euro Area; we live in Ireland, where there is a much more significant two way exposure in financial services.
We might be more relaxed about the asymmetric impact of Brexit on financial stability in Ireland if there were well developed financial shock absorbers at the "aggregate Euro area level".
But the last time there was an external shock impacting on an unstable national financial exposure it was every state for themselves.
We – and most other EU states – still bear the scars in the form of a very heavy debt load, racked up in dealing with the great recession, the banking crisis and the Euro area sovereign debt crisis.
In Ireland’s case, the debt pile has gone from €47bn pre crisis to €200bn now – a fourfold increase in the amount of debt that has to be serviced, through interest payments and through re-financing (paying off maturing bonds with money raised by issuing new bonds).
For the past few years – due in very large part to the quantitative easing programmes of the ECB and the Federal Reserve – the yield, the effective interest rate on the bonds used by governments to borrow money – has been very low, reducing the cost of holding such large amounts of debt.
Allied with zero or negative interest rates in the Central Banks, this has driven money into stock markets, property investment and sometimes even the real economy helping to create a modest but sustained recovery, first in the US and now here in Europe.
Which is good.
But sooner or later the central banks will start to normalise their interest rate policy, believing the recovery will no longer need to be propped up by Central Bank voodoo.
This is likely to happen first in the US (where there have already been some tentative baby steps in that direction) and then in Europe.
But these changes mean there will be a re-pricing of sovereign and commercial bonds, as more competitive returns are to be had elsewhere, and central banks stop buying up bonds to prop up their prices.
This is the first risk identified by the ECB: a re-pricing of global fixed income markets – triggered by changing market expectations about economic policies.
Those expectations of changed policy were strongest in the US in the wake of Donald Trump’s victory in the 2016 Presidential election, but appear to have faded somewhat in recent weeks as the administration runs into the mire of the Russian intelligence scandals and the tax reform plan hits the quick sands of Congress (not to mention the row over the "double counting" in Mr Trump’s first budget).
This sentiment has been felt in the major bond markets, with yields rising, then easing back in recent weeks, as markets became less optimistic about an upside in near term growth prospects in the US.
The close connections between the financial systems of the US and EU means that when US yields go up, they nudge European yields up too.
Add to this the gradual recovery in nominal growth across the Euro Area and there has been some upward pressure on sovereign yields here too.
There were also particular local circumstances, notably the rise in French yields as the presidential elections got closer and markets began to see how well Marine Le Pen was doing.
They have slipped back since (at 0.77 they have ducked back below Irish 10 year yields at 0.80, but had been higher in the weeks running into the election. By contrast Italian 10 year bonds yield 2.1%, Portuguese 3.2% and Greek 5.9%).
One of the problems with a rapid re-pricing of Euro are bonds is that there could be significant capital losses for investors who have bought a lot of bonds.
According to the ECB, around 15% of Euro Area bank total assets are in the form of bonds. It is even higher for insurance companies, pension funds and investment funds: about a third of their total assets are in the form of bonds holdings.
The prospect of bond re-pricing comes on top of risk number two for the ECB, the "adverse feedback loop between weak bank profitability and low nominal growth, amid structural challenges in the Euro area banking sector".
Euro area bank profitability is low, and went lower last year, with margin compression not being compensated for by increased loan activity. Aggregate Return on Equity for significant Euro Area Banks is 3% - far behind the 9-10% ROE reported by US and Nordic area banks.
The ECB says risk taking by Euro Area banks remained broadly unchanged last year "and no significant signs of excess can be inferred from their activities". But if they are not stepping up lending, they remain vulnerable to a re-pricing on their bond-holdings.
Though higher bond yields imply rising interest rates generally, and that should be good for bank margins. However, the ECB warns that high levels of debt held by governments, businesses and households leaves them vulnerable to rising rates.
As usual, the aggregate level date masks the fact that some countries are more vulnerable than others (see those bond yields above, and keep an eye on political developments in Italy in particular).
The bond market jitters over the election of Mr Trump, Brexit and the strong showing of Ms Le Pen and Mr Wilders is understandable given the nature of the immediate events.
But the ECB offers a longer term analysis of political uncertainty as well. Noting that several countries have seen an increase in political fragmentation and polarisation in recent decades, it says one reason behind this is "likely to be the increase in economic inequality observed in many economies over the past decade".
It cites OECD research noting that income distributions in advanced economies have become less equal since the mid 1980’s to conclude "As incomes became more dispersed, voters preferences became more diverse, with more polarisation among electorates resulting in increased political fragmentation".
Only the fourth risk – liquidity risk in the non-bank financial sector with potential spillovers to the broader financial system – is rated as a "potential risk", the lowest level of risk.
Since the financial crisis many investment funds have been hit by falling interest rates and in the "search for yield" have shifted more money into lower rated – ie riskier – investments to get the higher yields on offer.
They are also holding less cash (because of zero or negative rates).
This situation leaves them somewhat vulnerable if there is a bond re-pricing, and investors want some of their money back quickly.
Investor flows in to and out of such funds tend to follow past returns, but because so much money has gone into instruments that are likely to fall out of favour rapidly, this situation has the potential to amplify shocks in market prices.
The ECB warns that while the investment fund sector is subject to regulation, most existing rules do not have a systemic perspective, and may not prevent a build up of sector wide risks.
It says more information on liquidity in stressed circumstances and on leverage would be needed to properly monitor risks in this growing – and increasingly interconnected – sector.
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