Euro zone banks have limited direct exposure to the war in the Middle East, but the conflict could still generate systemic stress given interconnected vulnerabilities, European Central Bank Vice President Luis de Guindos has said, Reuters reports.

Financial markets have come under stress in recent weeks from the impact of the US and Israeli war on Iran, but the selloff outside the Middle East has been limited, even as some assets remain overvalued.

“Spillovers to the euro area financial sector have so far remained contained,” de Guindos said in a speech.

“Direct bank exposures to the region are limited, and the banking system is well-positioned with strong profitability and robust capital and liquidity buffers.”