The European Central Bank said Tuesday it would focus on banks' resistance to geopolitical risk in next year's stress tests after US President Donald Trump's tariff threats shook global markets.
Eurozone banks needed to "strengthen their ability to withstand immediate macro-financial threats and severe geopolitical shocks", ECB supervisory chief Claudia Buch told a European Parliament committee.
Such risks were "not new", she said, and were already addressed by the ECB's existing supervisory efforts.
This year's ECB stress test assessed banks' ability to withstand a common scenario including rising geopolitical tensions and higher tariffs.
But next year's exercise would go one step further by asking financial institutions to assess which "firm-specific geopolitical risk scenarios could severely impact their solvency", she said.
Recent tariff announcements by Trump had shown "how quickly heightened geopolitical risks can change the environment in which banks operate", Buch said.
Since returning to office in January, Trump has threatened sweeping tariffs on imports including those coming from the European Union.
In particular, the announcement of punitive tariffs in early April rattled markets, though the measures were quickly suspended and are still pending.
Trump's initial announcements led to "higher volatility" but were "short lived", Buch said, while the longer-term impacts would "only become apparent over time".
Higher tariffs, if realised, could impact growth and the financial health of firms, and banks might then be asked to stock up their risk provisions, she said.
The ECB regularly conducts stress tests to assess the resilience of eurozone banks to various economic and financial shocks as well as to cyberattacks and climate-related events.
These exercises aim to ensure that banks have sufficient capital to absorb losses in a crisis, to help build the resilience of the European banking system. – AFP/RSS
