According to the European banking supervisor Eba, European banks are well-prepared for the challenges posed by the US trade policy and financial market turbulences. “We are closely monitoring the situation, but we do not see any reason for panic” said Eba Executive Director Francois-Louis Michaud in an interview with the “Handelsblatt”. The Executive Director acknowledges that uncertainty is at an all-time high due to the Ukrainian war and potential disruptions in global trade. However, he believes that European banks can tackle these challenges from a position of strength. Banks have higher capital and liquidity buffers and are generally more profitable than in the previous decade, according to Michaud. They have also proven to be adept at switching to crisis mode and weathering difficult times, as seen during the collapse of Silicon Valley Bank and Credit Suisse in 2023.
However, Michaud identifies room for improvement in the recognition and assessment of risks. “Many bank risk departments still have deficiencies in managing and processing data and information” he said. This includes ensuring that financial institutions obtain all relevant information to accurately assess potential risks.
The direct involvement in the shadow banking sector, which includes private equity firms and private credit funds, accounts for only slightly over 10% of total assets. “The direct impact is not significant, but it is difficult to assess the indirect effects if problems arise in the shadow banking sector” Michaud added.