European Central Bank Supervisory Board member addresses geopolitics and market disruptors

She also addressed innovations, including the digital Euro, Artificial Intelligence in banking services and the significance of Ireland’s upcoming EU Presidency.

For Forvis Mazars clients, particularly those in the financial services sector, these insights offer early signals on supervisory expectations for 2026. The themes highlighted by Donnery align with many of the regulatory and strategic challenges we support clients with, including stress testing, governance, risk management, operational resilience and preparation for EU‑level transformation initiatives.

Geopolitical risks facing the EU banking sector

In the interview, Donnery discussed that in recent years geopolitical risks have evolved from credit risk, liquidity risk, operational risk, to trade and global tensions such as cyberattack and tariff risks. She informed that trade tariffs can disrupt corporate credit quality through their effect on the supply chain, and cyberattacks can increase operational risks for banks.

Donnery noted that last year’s stress test focused on trade tensions and showed that the EEA banking sector is resilient, reflecting strengthened capital and liquidity positions. This year, the ECB is conducting a reverse stress test, which looks more at the difference between banks. In this stress test, the focus will be on the bank’s business model, its exposures, its country of operations, its structures and the geopolitical risks it’s exposed to.

For institutions, the message is clear: geopolitical risk is now embedded in supervisory assessments. Banks with concentrated exposures, opaque supply chains or patchy cyber resilience can expect closer scrutiny. Our prudential and risk specialists are increasingly supporting clients to strengthen their scenario analysis frameworks.

European financial market disruptors

Donnery also referenced the potential sale of US Treasury bonds by European investors and its implications on European banks and the economy. On this, Donnery stressed that supervisors continuously monitor banks’ exposures as part of routine oversight, and any sudden large selloffs will be viewed as geopolitical and financial market disruption risks. As mentioned before, all such risk scenarios are included in the stress tests conducted on European banks.

On currency movements, including the weakening of the US dollar against the euro and its potential impact on European SMEs, Donnery emphasised that as supervisors, the ECB assesses banks’ exposure to exchange rate risk as part of the stress test conducted last year. The stress test highlighted that credit conditions have drastically improved since the 2008 financial crisis, with the European banking sector showing broad resilience to market disruptions.

Donnery noted that although non-performing loans have increased over the last 12-18 months, it is not due to the trade tensions but rather broader macroeconomic pressures and lingering pandemic-related effects such as supply chain changes.

EU banking regulation and supervision

A significant point made during the interview was on the discussion to simplify Europe’s regulatory and supervisory frameworks. The ECB’s view on this is that, as the levels of capital are appropriate for banks in the EEA, any legislative or framework change should not lead to a change in the level of capital requirements.

On the current deregulatory drive in both the United States and the United Kingdom, Donnery stated that the ECB agrees that simplification and streamlining are needed in the current regulatory frameworks; however, deregulation can lead to a crisis in the future. On Supervision of non-banks, Donnery believes that since the financial crisis, the role of non-banks has increased significantly in the financial sector.

Non-banks, such as fund managers, account for around half of global financial assets. The ECB believes there is a need to regulate and supervise them. To integrate the wider financial system, a central supervisory authority such as the European Commission, could bring more harmonisation, more consistency and lead to better supervision of the banking market.

On the European Commission’s proposal on Securitisation, the ECB believes it can allow banks to transfer risk off their balance sheets, free up capital and support lending. As part of the ECB's effort to streamline supervision, banks must now obtain approval before carrying out securitisations. Simple and standardised deals can go through a fast-track process, while more complex transactions will face closer scrutiny.

The digital euro and AI

Donnery emphasised the need to maintain citizens’ confidence in the central banking system, confirming that a digital euro would prioritise privacy and strengthen Europe’s payment infrastructure. Donnery confirmed that the ECB monitors the use of artificial intelligence by banks. Supervisors focus on ensuring strong governance and controls are present where AI is used.  She further noted that the ECB focuses on banks’ exposure to any potential market disruptions in the stock and equity markets, including where stocks appear to be overvalued and where there is potential for a sharp correction in asset prices.

This aligns with a wider trend we see across our client base: supervisors are no longer asking whether firms use AI, but how they govern it. Our digital and risk experts are helping organisations build AI governance frameworks, validate models and document controls in line with evolving regulatory expectations.

Ireland’s EU Presidency

Sharon Donnery described Ireland’s upcoming EU Council Presidency as a major opportunity in concluding important EU agendas. She noted that simplification of EU banking rules, streamlining supervision and making progress on the digital euro are key priorities for the ECB. She emphasised that it is important that Ireland acts as an honest broker and, at the same time, showcases the benefits of EU membership for a small and open economy during a time of increasing geopolitical risk.

Firms operating in or through Ireland may benefit from greater visibility into upcoming regulatory shifts and should consider how emerging policy themes may affect their operations.

How can Forvis Mazars help?

Our prudential risk experts recognise that ever-changing regulations remain a pivotal driver for the strategic priorities of financial institutions. Our team excels at helping clients within the financial services sector navigate the intricate web of regulations and meet regulatory reporting requirements. We work closely with our clients to identify their regulatory responsibilities and develop effective strategies for full compliance.