ECB warns of underpriced risks and maintains bank rules

Financial markets are currently underpricing significant geopolitical risks, creating a scenario where sudden and sharp sell-offs could occur, according to European Central Bank (ECB) supervisor Claudia Buch. In the annual supervision report, Buch emphasized the necessity of maintaining strict regulatory guardrails even as international pressure to deregulate grows. The United States has moved toward loosening banking regulations over the past year, creating an uneven playing field for global lenders, yet Buch cautioned that following suit could be dangerous.

Fragmentation or any weakening of standards could undermine banks’ ability to withstand adverse developments.