Buch emphasizes bank resilience amid geopolitical risks and calls for banking union

Claudia Buch, Chair of the ECB's Supervisory Board, emphasized the need for strong bank resilience and a complete banking union in an interview with Naftemporiki. She highlighted geopolitical risks and the importance of robust supervision to absorb potential shocks.

Geopolitical shifts demand integrated resilience

Claudia Buch, Chair of the ECB's Supervisory Board, highlighted that heightened geopolitical risks are challenging the established world order, making bank resilience a top supervisory priority.

The Group of Central Bank Governors and Heads of Supervision recently reaffirmed the expectation for full and consistent implementation of the Basel III framework, emphasizing common guardrails in uncertain times.

Buch stressed that resilience enables banks to respond to shocks, adjust flexibly, and absorb losses, requiring adequate capitalisation to support the economy.

She advocated for 'more Europe' through greater harmonisation of national rules to strengthen the Single Market and simplify supervision.

The absence of European deposit insurance remains a significant obstacle to banking market integration, as depositors require consistent protection regardless of location.

Stress tests sharpen risk focus

Supervisors are refining stress-testing models to assess geopolitical risk impacts on bank capitalisation.

After last year's EU-wide test confirmed capital buffers, this year banks are defining scenarios that could cause a 300 basis point capital depletion, aiming to gauge risk management quality.

Buch noted the significant drop in euro area non-performing loans (NPLs) from 8% in 2014 to 2% in late 2025.

Yet, she cautioned that factors like weaker growth, higher energy prices, and reduced fiscal capacity could reverse this trend.

Banks must remain vigilant, monitor vulnerable sectors, and uphold robust underwriting standards, as their weakening serves as an early warning for future NPLs.

Resilience: An ongoing imperative

The interview underscores that while European banks have made significant strides in resilience, particularly in reducing non-performing loans, fundamental vulnerabilities persist.

Geopolitical shifts and an incomplete banking union demand continuous adaptation and robust supervisory frameworks.

Sustained efforts in capital quality and risk management are not merely regulatory compliance but essential for navigating an increasingly uncertain global economic landscape.