Financial markets are underestimating geopolitical risks, raising the likelihood of sudden sell-offs, ECB supervisor Claudia Buch warned in the central bank’s annual report.
Buch cautioned against loosening bank regulations, stressing that strong safeguards remain essential as global tensions escalate and financial uncertainty deepens.
Her remarks come as the United States eases banking rules, increasing pressure on other regulators concerned about uneven competition for lenders.
She emphasized that weakening standards could undermine banks’ resilience, particularly during periods of heightened geopolitical instability and market volatility.
Although bank shares have declined amid recent Middle East conflict, market reactions have remained orderly despite ongoing uncertainty.
Buch noted that lenders are well-capitalized with sufficient buffers, but warned that underlying risks remain elevated across the financial system.
She added that current market indicators fail to fully reflect these threats, increasing the risk of abrupt repricing if sentiment shifts suddenly.
The ECB plans to prioritize resilience, conducting stress tests on major banks to assess their ability to withstand potential geopolitical shocks.
