Buch: Banks resilient, but geopolitical risks demand vigilance
Claudia Buch, Chair of the ECB's Supervisory Board, stated that European banks are resilient despite a fragile geopolitical situation. She emphasized that supervisors are focused on improving banks' resilience to macroeconomic and geopolitical risks.
Banking sector's solid footing
ECB Supervisory Board Chair Claudia Buch highlighted the improved resilience of the European banking sector.
Capital and liquidity levels have risen and are stable, while profitability has improved due to higher interest rates.
The share of non-performing loans (NPLs) has significantly decreased from an average of 7.5 percent in 2015 to around 2 percent, with single-digit shares across all countries.
Buch noted a slight increase in NPLs in countries that previously had very low levels, such as Germany and Austria, but stressed that overall resilience has improved significantly.
This progress is attributed to better regulation, supervision, and enhanced risk management by banks.
Fiscal measures during the COVID-19 pandemic and the energy crisis also buffered major shocks, preventing them from impacting banks' balance sheets.
Navigating future headwinds
Despite current strength, Buch identified several persistent risks, particularly geopolitical ones.
The gradual effects of US tariff hikes and higher energy costs are still impacting companies and banks' balance sheets.
Supervisors are prioritizing two key areas: enhancing banks' resilience to macroeconomic and geopolitical risks, including climate and environmental risks, and strengthening operational resilience against threats like cyber risks.
Buch acknowledged the debate on regulatory complexity but affirmed the ECB's commitment to efficiency and effectiveness without lowering supervisory standards.
Capital requirements for European banks are comparable to other major jurisdictions, and well-capitalised banks tend to be more efficient and competitive, she noted.
Integration's long road
Progress on 'too-big-to-fail' has been made with the Single Resolution Mechanism and higher capital for large banks.
However, the absence of a common European deposit insurance scheme and unresolved issues around liquidity provision in resolution remain critical gaps.
Closing these structural deficiencies is essential to fully decouple risks between banks and states, fostering deeper market integration and ensuring equal protection for all depositors across the euro area.