Chair Statement at the Hearing of the Committee on Economic and Monetary Affairs

Her speech  highlighted two pressing developments: the recent tariff announcements and their uncertain impact on banks, and the ongoing debate on simplifying the regulatory and supervisory framework to foster growth and competitiveness.  In this article, we provide a breakdown of the key points made in her speech.

Recent Developments

Impact of tariffs

Recent tariff announcements have introduced uncertainty into the financial system. These changes can disrupt international trade, slow down economic growth and increase risks for businesses and banks. Although the financial system has remained stable so far, the long-term effects remain uncertain. An increase in tariffs is likely to reduce trade and could negatively impact the growth and health of financial firms. To safeguard themselves against tariffs, banks should:

• Maintain strong capital buffers, ensuring enough reserves are held to absorb shocks.
• Engage in stress testing for adverse scenarios driven by geopolitical tensions to check resilience.
• Assess how exposed clients are to tariff increases and globally disrupted supply chains.

Banking sector indicators

European banks showed solid performance as of the end of 2024:

• Common Equity Tier 1 ratio: 15.9%
• Leverage ratio: 5.9%
• Return on equity: 9.9%

Additionally, liquidity buffers have remained stable. However, there are early signs of rising credit risk:

• Stage 2 loans increased to nearly 10%, up from 8.4% in 2020.
• Non-performing loans remain stable at around 2%, but vulnerabilities exist, especially in commercial real estate.

Regulatory reporting reform

To make supervision more efficient and focused, the ECB is updating its approach in various ways. Busch outlined several key changes:

• The Supervisory Review and Evaluation Process (SREP) is being reformed.
• Decisions on capital, securitisation approvals, and authorisations will be quicker and more data-driven.
• Digital tools will support faster decision-making.
• Internal model approvals and stress-testing processes are being simplified.
• Reporting requirements are being mapped to remove overlaps and improve proportionality.

Looking ahead

Deepening the single market and completing the Banking Union are considered the most effective ways to support long-term growth and financial stability. A key missing piece is the creation of a European deposit insurance scheme, which would protect savers across the EU and improve profitability and resilience for banks.

Currently, many banking rules differ across EU countries due to national interpretations of EU directives. This includes laws on bank governance and accounting, or insolvency legislation. Such fragmentation makes supervision more complex and limits cross-border banking activity. Harmonising these rules would simplify regulation and support integration.

Opinion: What it means for banks

The growing focus on geopolitical risk, such as a potential shortage of US dollars if the Federal Reserve pulls back its support, signals a shift in the risk landscape for banks. This type of scenario could significantly affect global funding markets, especially for European banks that rely on dollar funding for international operations. This means a more proactive approach is required in managing liquidity risk, such as maintaining strong capital buffers to withstand sudden market shocks. The inclusion of geopolitical risk in the 2026 thematic stress test, as part of the Internal Capital Adequacy Assessment Process (ICAAP), reflects the seriousness with which supervisors are taking this threat. There is a clear message that resilience is not just about financial metrics but about being ready for complex, fast-moving global events.

How can Forvis Mazars help?

As banks face increasing pressure to strengthen resilience and adapt to evolving supervisory expectations, Forvis Mazars is well-positioned to support financial institutions through these changes. Our prudential risk and regulatory experts help banks respond to key challenges such as:

• Enhancing internal systems to meet supervisory expectations.
• Strengthening digitalisation strategies and managing cyber risks.
• Navigating reforms to SREP.

We work closely with clients to:

• Interpret new supervisory priorities and stress testing requirements.
• Design practical solutions for improving risk management and reporting.
• Ensure compliance with regulatory frameworks while maintaining operational efficiency.

Our goal is to help banks stay resilient, competitive, and fully aligned with supervisory expectations.