European banks stabilize but risks remain, report says

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European banks have stopped bleeding money, but they remain vulnerable to the effects of the sovereign debt crisis or a slowdown in the economy, and a small number still depend on low-cost loans from the European Central Bank, a report from the bank said on Thursday.

In its twice-yearly assessment of the European financial system, the central bank portrayed the euro area as being more stable than it was a few months ago, though still exposed to setbacks.

“The overall economic and financial situation is still fraught with risks for financial stability,” the central bank report said. “There is a risk that the recent recovery in earnings may turn out to be unsustainable.”

The sovereign debt crisis, which has centered on Greece and Ireland, could recoil into the banking system, the central bank said.

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