ECB Warns European Banks to Tighten Risk Controls Amid Growing Uncertainty

The European Central Bank's supervisory arm is warning European banks to strengthen their risk controls as they enter a more uncertain phase. The ECB says that while banks have experienced stronger profitability and solid capital positions, they must not become complacent due to growing geopolitical, climate, technology, and private credit risks.

According to the ECB, lenders should use the current favorable earnings climate to bolster their resilience, as profitability could reverse if economic or rate conditions change. Asset quality remains sound, but the ECB detects credit risk deterioration in certain countries and segments.

The ECB is also concerned about operational and technological risks, including dependency on third-party providers and AI-driven cyberattacks. Banks are urged to maintain strict lending standards, use prudent collateral valuations, and ensure pricing reflects underlying risks.