European Central Bank (ECB) supervisor Claudia Buch stated on Friday that eurozone banks’ balance sheets do not yet fully reflect elevated geopolitical tensions, cautioning that loan quality deterioration could take years. Lenders across the region have experienced stress as global events, including tariffs, conflict in the Middle East, and shifting international alliances, disrupt supply chains, fuel inflation, and impact profitability. Buch told a forum at the Institute of International Finance, “We haven’t seen the full effect… of these tensions, of the geopolitical risk on banks’ balance sheet. We need to be very, very vigilant.”
Buch elaborated that it typically takes about two to three years for financial difficulties in the corporate sector to manifest and subsequently feed into banks’ balance sheets. Geopolitical tensions also encompass an increase in cyber threats, a growing concern for financial stability. Industry experts have recently focused on Anthropic’s Mythos, a new AI model which the company and cybersecurity specialists warn could significantly enhance complex cyberattacks, posing risks to existing legacy technology systems. Anthropic develops advanced artificial intelligence models. Its Mythos model has been highlighted for its potential to supercharge sophisticated cyber security threats.
When questioned about this specific threat, Buch confirmed the ECB is undertaking extensive work on cyber resilience. She emphasised that the ultimate responsibility for building resilience, investing in technology, and fostering innovation rests with the banks themselves, including their owners and management. While the ECB does not claim to dictate specific actions, it has dedicated initiatives to comprehend systemic implications and can alert banks if they appear to be underinvesting. Buch noted, “We can’t take the decisions for the banks, but we can alert them to best practices and (put) governance in place, also around their cyber-resilience and team resilience.”
