FRANKFURT (Nov 2): The European Central Bank has identified high valuations for ​AI stocks, stress in the bond market and potential losses ‌at shadow banks as the main risks to financial stability at present, ECB Vice-President Boris Vujcic said on Monday.

The ECB is due to publish ​its biannual Financial Stability Review on November 18 against ​a backdrop of volatile markets as expected returns on AI ⁠investments come under scrutiny and indebted borrowers such as France face ​pressure.

The ECB has been warning about a bubble in US tech ​stocks for at least two years but this time cracks are beginning to appear, with the Nasdaq down nearly 8% from its all-time high after results ​from the likes of Alphabet, Intel and Amazon.

"As the FSR ​has been prepared, we saw the correction in the markets in AI (stocks)," Vujcic ‌told ⁠an event in Ireland. "Obviously, everybody's exposed to that...including Europe," he added, noting that many investment funds have positions linked to AI.

As a second risk, Vujcic noted the recent, sharp rise in government ​bond yields, especially ​for indebted countries.

He ⁠said the ECB would be "monitoring" the bond market but, echoing the central bank's official line and ​playing down speculation about any intervention, he added ​that ⁠the primary response should come from governments.

"The answer to that, obviously...if the problem is fiscal, has to be primarily the fiscal reaction," ⁠he said.

He ​mentioned losses at investment funds and ​other shadow banks — non-bank financial institutions in central bank speak — as the third main ​risk.

Uploaded by Siow Chen Ming