EU to check how banks would address geopolitical shocks, commerce wars

MILAN (Reuters) – The European Banking Authority stated on Monday it could assess how European banks would react to a hypothetical spiralling of geopolitical tensions and ensuing commerce wars in an upcoming well being verify of the business.

The simulation, which assumes a dramatic blow to the European economic system from geopolitical and commerce shocks, kicks off simply as Donald Trump is sworn in as U.S. president and prepares to evaluation commerce relationships with key companions.

In launching its newest spherical of “stress checks”, which is able to cowl 64 banks accounting for 3 quarters of banking property within the European Union and Norway, the EBA stated it could publish the outcomes of the check-up at first of August.

Of the 64 banks, 51 are from international locations whose banking sector is supervised by the European Central Financial institution. In parallel, the ECB will conduct its personal stress checks on a bunch of banks that aren’t lined by the EBA.

The EBA stated it could check the banks’ resilience to a worst-case situation by which geopolitical shocks result in a cumulative 6.3% contraction in actual gross home product throughout the EU within the three years by way of 2027.

Underneath the situation, provide shocks linked to commerce tensions are seen driving inflation sharply larger, earlier than the harm to confidence, employment ranges and shopper spending reins within the tempo of value enhance.

The banks being examined, which on Monday acquired all the mandatory paperwork and templates, are due to offer their ultimate solutions by the beginning of July, with intermediate submission deadlines earlier than that.

The EBA final printed the result of a spherical of stress checks in 2023, roughly a decade after it began the in-depth check-ups of the bloc’s lenders, forward of the ECB taking up the position of single banking supervisor in 2014.

The checks are a instrument banking supervisors use to evaluate how a lot capital lenders want to soak up potential losses and assist the economic system in a disaster scenario.

Their outcomes feed into the supervisory course of.