The European Central Bank is intensifying pressure on EU banks to prepare for geopolitical shocks, signalling growing concern among supervisors that lenders could yet be tested to the limit by ongoing wars, trade tensions and weaker growth despite solid capital buffers.
In an address to the European Parliament’s Committee on Economic and Monetary Affairs on 18 March 2026, Claudia Buch, chair of the ECB’s Supervisory Board, stated that euro area banks had entered the current period of “heightened geopolitical uncertainty” against a background of “solid levels of capitalisation”.
She noted that significant institutions had an aggregate Common Equity Tier 1 ratio of around 16%, while the share of non-performing loans remained stable at around 2%. Even so, Buch cautioned that vulnerabilities remained in areas including commercial real estate and lending to small and medium-sized enterprises.
Heightened geopolitical risks
Buch asked EU banks to identify geopolitical risk events that could cut CET1 capital by at least 300 basis points and set out what preventive measures they would take to reduce the impact.
This move marks a reversal from the 2025 EU-wide stress test, which assessed a common downturn scenario linked to geopolitical frictions and protectionist measures. Buch argued that the new approach would give supervisors a better view of how individual lenders assessed their own exposure to geopolitical threats.
She added that ongoing war in the Middle East, alongside broader geopolitical tensions, was adding uncertainty to economic forecasts, affecting markets and potentially impairing credit quality at a later stage.
Lending standards under closer scrutiny
The ECB also signalled concern that banks could come under pressure to weaken lending standards as competition intensifies and loan losses remain relatively contained.
Buch stated that supervisors would examine underwriting standards more closely to assess whether lending terms still matched underlying risks. While there was no clear evidence of widespread deterioration, she noted that available data remained incomplete, making it harder for banks to benchmark themselves against the market.
The warning comes as weaker growth dynamics and elevated uncertainty threaten to damp loan demand, increase credit losses and put pressure on bank capital.
Simpler supervision, tougher focus
Alongside the tougher stance on risk, Buch said the ECB was streamlining parts of its supervisory work to focus more on material threats to resilience.
She stated that additional supervisory reporting collected each year as part of individual bank assessments had been reduced by about 20%. The ECB is also standardising processes including capital decisions, internal model approvals, fit and proper assessments and onsite inspections, with the aim of speeding up lower-risk cases while devoting more attention to complex and potentially systemic issues.
Buch argued that banks’ solid profitability gave them a window to invest in IT, digitalisation and operational resilience at a time when the sector was facing more frequent cyberattacks, growing use of artificial intelligence and rising dependence on outsourced critical services.
She also reiterated that fully implementing Basel III should remain a policy priority and renewed calls for deeper European market integration, a common deposit protection system and a stronger liquidity backstop for banks in resolution.
For now, the ECB’s main message was that resilience cannot be taken for granted. Stronger capital and stable asset quality have given euro area banks a buffer, but supervisors are increasingly focused on the risks that may emerge only after geopolitical and economic strains have filtered through to the financial system.
