Interview with Les Echos

Interview with Patrick Montagner, Member of the Supervisory Board of the ECB, conducted by Ingrid Feuerstein and Guillaume Benoit

7 October 2026

Interest rates are rising across the world, particularly in the United States and France. What impact will this have on financial stability?

As you know, the ECB is responsible for both monetary policy and banking supervision. These two functions are strictly separate. In our role as supervisor, our task is to make sure that banks are resilient, so this is the lens through which we are viewing the current environment. Uncertainties have been growing for over two years now. The interest rate environment is one uncertainty, along with geopolitical risks and their impact on energy prices. And there are imbalances in private asset markets resulting from the massive inflow of liquidity during the period when borrowing costs were close to zero. All of this could, at any moment, sow the seeds of a more significant shock that could, in turn, spill over to the financial system, even though the system itself is currently very robust.

What are the potential consequences for banks?

An increase in rates obviously has implications for banks, affecting both sides of the balance sheet. On the liabilities side, banks face higher funding costs, both through customer deposits and when borrowing on financial markets. Margins may become squeezed, especially if banks are unable to pass on these higher costs to the assets side, namely by increasing their lending rates. And even if they do manage to pass on the higher rates through prices, this may affect their lending volumes. We know that some markets, such as residential mortgage lending, are highly sensitive to prices.

Another aspect is that banks themselves hold sovereign bonds, which may fall in value. This risk is relatively limited because, first, banks can hedge their interest rate risk using market instruments and, second, it depends on the maturities of the assets they hold. It’s also important to bear in mind that sovereign bonds only account for a relatively small share of euro area banks’ assets – around 9% of the total. And banks are under no obligation to sell them.

But widening spreads still pose a risk…

As the banking supervisor, the ECB’s role is to determine whether a widening of spreads increases the risks faced by the banks we supervise. At this stage, we do not think that it does. Private issuers are also affected by the widening of spreads, albeit to a different extent. Comparing spreads with past levels is useful, but what really matters to us is having a broader view of the economy and assessing the combination of risks that could trigger stress somewhere in the system, not necessarily where everyone expects. When supervising the banking sector, we focus on the potential contagion channels through which a crisis could spread.

Could the events of 2008 happen again?

Today, the quality of European banks’ capital is far better than it was in 2008. It’s mainly Common Equity Tier 1 capital, unlike in 2008, when it was largely made up of subordinated debt. Banks’ ability to absorb shocks is much better, if it ever came to that. For the past two to three years, banks have enjoyed strong profitability, as positive interest rates have once again allowed them to fulfil their role as financial intermediaries.

And how does it compare with the 2012 sovereign debt crisis?

Here, too, it’s very different. In 2012, the entire banking sector was under severe strain, especially in Europe. Banks were no longer lending to each other, and the central bank was playing the role of the interbank market. Again, we’re not trying to paint an overly rosy picture. The ECB remains cautious in its assessment, but we are starting from a much stronger and more resilient position than in 2012. The priority now is to maintain that resilience.

And yet European banks do need to boost their competitiveness relative to their US counterparts. That’s exactly what the European Commission is currently working on…

The ECB has been involved in these consultations and has publicly stated that the current regulatory framework needs to be streamlined. Many additional layers have been added that are not always consistent with one another or, at the very least, have created a degree of complexity that makes effective oversight more difficult. In terms of capital management, there are many overlapping requirements set by different authorities in different places, and they can have a cumulative, even contradictory, effect.

Some Member States have argued for the rules to be tailored to the size of individual banks…

We will always be in favour of retaining a Single Rulebook, because depositors need to have confidence, regardless of the type of bank they entrust with their money. We think it’s necessary to keep this common framework, with certain adjustments, and, moreover, to treat any relaxation of capital requirements with the utmost caution, as it could give the impression that banks now need less capital, even though uncertainty is currently rising. The same principle should guide the debate on the output floor. This is an important part of the Basel framework which sets a floor for own funds requirements calculated using internal models. Its role must be preserved, even if its calibration were to be reassessed, as proposed by the Commission.

Is AI having an effect?

Artificial intelligence is indeed causing a great deal of uncertainty. To what extent could it shake up the economic order? Could some economic actors disappear, to be replaced by others? Could it change how banks extend credit, conduct market operations or hedge against interest rate and currency risk? Supervision is a dynamic process that is constantly evolving. That’s why it can sometimes demand a lot of banks – no answer is ever final, and every question will be asked repeatedly. And let me say it again: the point at which all these uncertainties converge could be the catalyst for an economic shock.