The newly appointed chief of the European Banking Authority said European lenders are presently resilient enough to cope with existing financial and geopolitical pressures, while warning that supervisors must ready the sector for a different set of challenges ahead.
François-Louis Michaud, who assumed leadership of the Europe-wide banking regulator this week, told reporters in a briefing the day before he formally took the post that banks have substantial capital and liquidity cushions. He said those buffers make lenders able to absorb large shocks as markets face strains linked to hostilities involving the U.S. and Israel on Iran.
His remarks, embargoed for release on Thursday, echoed concerns recently voiced by the European Central Bank, which last month cautioned that markets may be underpricing the potential stress the financial system faces from geopolitical developments. The ECB has placed the strengthening of banks' resilience to geopolitical risk high on its agenda for the year and plans to run stress tests on the region's largest banks.
"We also know that what’s coming next will not be very much like what we’ve been seeing in the past, and we need to be prepared for that," Michaud said, underscoring a supervisory view that future shocks may differ in nature from those previously encountered.
Cybersecurity and AI on the supervisory radar
A prominent supervisory focus is cybersecurity, particularly risks emerging from a new artificial intelligence model developed by Anthropic called Mythos, which cybersecurity specialists warn could enable sophisticated attacks targeting the banking industry. U.S. authorities held an urgent meeting with bank chief executives last week to discuss that risk, and the ECB intends to query banks on their readiness for this type of threat.
Michaud said that technology-driven risks and opportunities are central to the EBA's oversight priorities. "At every board meeting that we have, we have a very thorough discussion about risks, and we discuss precisely that type of thing: cyber threats, what we see from the different parts of the sector, et cetera. So it’s front and centre. We’re constantly discussing it," he said.
The European Union is working to shield its financial industry from vulnerabilities associated with dependence on external technology providers, a concern that factors into supervisory planning and outreach.
Private credit: vigilance but not systemic for banks, says EBA head
Michaud also addressed the issue of private credit, telling the briefing that, in his view, private credit does not currently represent a systemic problem for European banks. That sector has drawn scrutiny in recent months amid worries over lending standards and the limited transparency that characterises parts of the private credit market.
Regulators have been concerned about potential interlinkages between private credit and more regulated parts of the financial system, and those apprehensions have contributed to market unease over the past six months. Michaud's assessment signals that supervisors are monitoring the situation but do not see immediate systemic contagion into traditional banks.
Overall, the EBA chief conveyed a message of guarded confidence in banks' current capacity to weather existing shocks while emphasising the need for proactive measures to address emerging technological and geopolitical risks that could reshape the threat landscape for the sector.