Interview with Le Monde

Interview with Claudia Buch, Chair of the Supervisory Board of the ECB, conducted by Eric Albert, Marc Angrand, Marie Charrel and Béatrice Madeline on 4 June 2025

11 June 2025

How is the European banking sector doing, in an uncertain economic environment marked by multiple tensions?

The financial situation of the European banking sector is good: generally, banks are well-capitalised, and their profitability has benefited from the rise in interest rates over the past years. But the global context in which European banks operate is challenging, as we saw in early April when there was a strong market reaction to the announcements of tariffs. This shows how quickly the external environment can change.

Banks have managed the situation well so far, but the longer-term economic impact of tariffs has yet to materialise. What will the consequences be for credit risk and for the real economy? It will take time before the full effects become visible in banks’ balance sheets. Geopolitical risk is one of the main drivers of the uncertainty that banks must prepare for.

Has the rise in tariffs already affected the economic health of firms and therefore banks?

At this stage, there are no strong signs that the impact of tariffs is leading to higher credit losses in banks’ loan portfolios, but that could change. Banks must therefore analyse their exposure sector by sector, firm by firm.

One potential risk is that deteriorating business performance and financial conditions could lead to higher credit risk for banks. If that were to happen, banks might try to preserve their financial strength by reducing their risk exposure, in other words, by curtailing lending. Such a credit tightening could amplify negative economic trends. The better capitalised banks are, the better they can buffer shocks and the less likely we are to see such a procyclical scenario.

Does the situation in the financial markets pose an additional risk?

Markets reacted as soon as the tariffs were announced but geopolitical uncertainty may not be fully priced in. There is still considerable uncertainty about how a scenario of escalating trade barriers or heightened geopolitical tensions might unfold, making risk assessment very difficult.

We are therefore monitoring banks’ exposure to these risks, as well as their funding conditions. We have observed an increase in banks’ funding costs, though far from the levels reached during previous crises.

In this context, the financial regulation debate has recently included proposals to delay implementing the final part of the Basel III rules, specifically, the Fundamental Review of the Trading Book (FRTB) rules on market activities. Would such a delay be a good idea?

We must remember that the current resilience of the banking sector is no coincidence: it is largely the result of reforms implemented after the global financial crisis. Regulation and supervision have been greatly improved. Without these reforms, banks would not have been able to absorb major shocks – such as the COVID-19 pandemic or the energy crisis – without posing a threat to financial stability. Fiscal support to the real economy certainly played a role as well, but having a strong regulatory framework was a key factor.

It is therefore crucial to bear in mind that this stability is the result of past efforts. After almost a decade of relative financial stability, we should not take this for granted. We should not relax the rules. Rolling back regulation or weakening supervision would be a mistake. Banks acknowledge that the environment is risky within their own risk management.

Are we forgetting the lessons of past crises?

Most stakeholders understand the importance of a stable regulatory framework and strong supervision. But it’s true: memory can fade over time. That’s why it’s vital to constantly explain the benefits of a stable financial system and to stress the importance of a strong regulatory framework.

We can debate how to make regulation and supervision more efficient and effective – but relaxing the rules is not the answer to the challenges we face.

By continuing to apply the rules, isn’t Europe running the risk of putting its banks at a disadvantage in global competition?

I don’t think so at all. On the contrary, I believe strong regulation and effective supervision are a competitive advantage for European banks in the global market. Banks that are better capitalised and well-managed are more resilient and can provide reliable services to the real economy, especially in times of crisis.

There are recurring concerns about risks in the non-bank sector (e.g. insurance companies, investment funds, etc.). Have these risks increased?

Since the global financial crisis, there has been growth in non-bank financial intermediation. This is a global trend, and Europe is no exception. One driver of this shift has been stricter banking regulation, which has pushed some activities towards less tightly regulated areas. That’s why we need to remain vigilant. Some non-bank financial institutions, like insurance companies, are well regulated and can absorb certain shocks better. In that sense, a more diversified financial system can offer advantages. But in other areas, particularly private capital markets, we lack sufficient data. That’s why I think banks need to closely monitor their exposure to private markets, just as they would for any other risk.

Is it necessary, as recently reported in the Financial Times, to conduct stress tests on non-bank financial institutions?

Some authorities, like the Bank of England, have already carried out such tests and we are learning from their experience. While we are not planning such tests within the Single Supervisory Mechanism, we are carefully monitoring counterparty credit risk. Stress tests provide valuable information, but they are also complex and resource-intensive, so we need to carefully assess whether they are needed and how they are designed.

While the ECB is encouraging consolidation in the European banking sector, current merger and acquisition projects are limited to the national level. Why is that and how can cross-border consolidation be promoted?

From a supervisory perspective, given that we apply the Single Rulebook, there is no difference between national and cross-border mergers. European borders should not matter. But in reality, borders do still matter because the European banking market is not fully integrated. There are still many differences in national regulations that also affect banks.

The need for greater convergence of regulations is now widely recognised, and the Letta and Draghi reports have stressed the importance of promoting the Single Market. The political will exists but implementing change takes time. In terms of completing the banking union, now is the right time to move forward, not least because banks are in a good position. Completing the banking union is important in terms of withstanding future shocks.

Are European banks correctly assessing cyber threats and are they well prepared to counter them?

The data that banks provide on cyber incidents show that the number of cyberattacks has doubled since 2022 and that their severity has increased. That’s why we carried out a cyber resilience stress test last year, simulating a cyberattack that would prevent a bank from providing core services. The goal was to assess how long it would take banks to restore operations and to evaluate the potential cost of such an attack. We concluded that banks are generally well prepared, while there is still room for improvement in certain areas. Clearly, cyber resilience is a priority for banks and for us.