4 days ago
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Reuters
Wed, March 18, 2026 astatine 7:33 AM CDT 1 min read
FRANKFURT, March 18 (Reuters) - Financial markets are underpricing geopolitical risks, expanding the imaginable for abrupt sell-offs, European Central Bank supervisor Claudia Buch said connected Wednesday, as she warned against easing slope regulations.
The U.S. has been loosening slope rules for the past year, putting unit connected regulators elsewhere arsenic their lenders could look an uneven playing tract if they did not travel suit.
"These guardrails request to beryllium maintained as geopolitical tensions rise," Buch said successful the ECB's yearly supervision report. "Fragmentation oregon immoderate weakening of standards could undermine banks’ quality to withstand adverse developments."
Bank shares person sold disconnected since the commencement of the U.S. and Israeli warfare connected Iran but market moves person been orderly, overmuch similar implicit the past twelvemonth erstwhile tariffs and wars raised uncertainty.
Lenders are decently capitalised and person each the indispensable buffers, but risks stay high, Buch argued.
"This uncertainty is not adequately reflected successful market-based indicators of fiscal stress, which could pb to an abrupt repricing of risk," she said.
She argued that shocks could materialise unexpectedly and dispersed quickly fixed geopolitical tensions, stretched valuations successful immoderate market segments, increasing interconnections with non-bank fiscal firms and the hazard of abrupt shifts successful marketplace sentiment.
The ECB has made strengthening lenders' resilience to geopolitical risks a cardinal priority for this twelvemonth and volition accent trial the largest banks successful the coming months.
(Reporting by Balazs Koranyi, editing by Andrei Khalip)
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