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ECB headquarters in Frankfurt am Main
Photo: IMAGO / Jochen Tack
From the perspective of the top ECB banking supervisor, Claudia Buch, institutions in the euro area must prepare for greater economic, climate and geopolitical risks. Interest rates and energy prices have already risen, Buch said in her first major speech as the new head of the ECB's banking supervision in Brussels. The growth forecasts have already been lowered, climate-related risks are becoming increasingly visible and the number of cyber attacks has increased. “Many of these changes are structural rather than temporary and require adjustments at the company and industry level.” Company bankruptcies and credit risks could increase, and heavily indebted borrowers with weak business models could come under pressure, she warned.
The former Bundesbank Vice President has been in charge of ECB banking supervision since the beginning of the year. The new risks are currently not sufficiently taken into account in the risk management processes of financial institutions, said Buch. "Banks' decisions could therefore be based on incorrect or incomplete information." The ECB is currently monitoring around 110 major banks from the euro zone, including Deutsche Bank and Commerzbank in Germany.
The number of bad loans is increasing
There are signs that the quality of major banks' assets is beginning to deteriorate, Buch said. The number of bad loans has increased moderately again since 2023, even if they remain at a low level. Banks used a variety of approaches to deal with the new risks. But many of them would not meet these risks. The supervisory authority has therefore demanded improvements and is now re-initiating inspections to ensure compliance with the requirements, said Buch.
The German economist also pointed out the increasing digitalization of the banking sector. According to Buch, this can also lead to deposits being withdrawn from accounts much more quickly than before when banks come under pressure. She referred to the regional bank crisis in the USA in spring 2023. "We will therefore concentrate on the financing and liquidity risks in this new environment, including through targeted reviews of financing plans," she announced. The Silicon Valley Bank (SVB) and several other US financial institutions collapsed in 2023 as a result of the crisis. Back then, customers had withdrawn billions of funds from their accounts within a short period of time.
beb/Reuters