Buch: Reforms needed for resilient, integrated EU banks
Claudia Buch, Chair of the ECB's Supervisory Board, emphasized the need for reforms to strengthen the resilience and integration of euro area banks. She highlighted the complex risk environment and institutional framework they face.
Geopolitical tremors and capital buffers
Euro area banks operate in a complex risk environment, marked by geopolitical conflicts and rising tariffs.
While current financial indicators remain robust, with strong capitalisation and low non-performing loans, weaker growth may translate into impaired asset quality over time.
Buch stressed that robust capital positions are essential for banks to absorb shocks and continue financing the economy.
Evidence suggests that higher capital requirements since the financial crisis have not hindered banks' ability to lend.
European capital requirements align with the Basel framework and are comparable to other major jurisdictions, with overall Common Equity Tier 1 requirements largely unchanged since 2019.
Macroprudential buffers have moderately increased, providing flexibility during stress periods.
AI, cyber threats, and operational fortitude
Digital innovation, including artificial intelligence (AI) tools, is a key driver of banks' competitiveness, with over 85 percent of supervised banks using such tools.
However, the development of frontier large language models could challenge cyber defenses, increasing the speed and scale of advanced cyber tools while shrinking response times for defenders.
Critical infrastructure, such as cloud services and payment systems, also faces heightened cyberattack risks.
Banks' management bodies must take ownership of this issue, ensuring strong IT governance, effective cyber risk management, and sound outsourcing arrangements.
Sustained, multi-year investment in IT systems and sufficient staffing are crucial, with current strong profitability providing scope for these necessary investments.
Integration: a slow but vital path
The reform agenda outlined by Buch is undeniably crucial for the long-term health and competitiveness of the EU banking sector.
However, the persistent fragmentation and slow progress on banking union completion remain significant hurdles to true integration and risk-sharing.
While proposed simplifications are welcome, their impact will be limited without a fully unified supervisory and resolution framework to ensure equal protection for all deposits.