(Financial) services Banks should prepare for geopolitical risks, says ECB

According to the ECB, the major banks in the eurozone have shown themselves to be resilient in recent years. However, it sees many new risks. The ECB's banking supervisor is urging banks to build resilience.

In view of increased geopolitical risks, extreme events have become more likely, said the head of banking supervision at the European Central Bank, Claudia Buch, at a hearing of the EU Parliament in Brussels. Negative events are difficult for banks and markets to predict or quantify, as traditional risk models fail. However, they have an impact on banks in the form of credit, market, liquidity and operational risks.

"Escalating geopolitical tensions can increase financial market volatility and trigger asset price corrections. Financial sanctions or cyber-attacks can exacerbate the risks," said Buch. "Governing bodies should therefore ensure that banks are sufficiently resilient from a financial and operational perspective."

This requires, for example, a risk management framework that covers the negative scenarios relevant to each bank. In addition, banks should reduce their vulnerability to geopolitical risks through provisioning practices, capital planning and cyber resilience, among other things.

SDA