The General Board of the European Systemic Risk Board held its 53rd regular meeting on 21 March 2024

At its meeting on 21 March 2024, the General Board of the European Systemic Risk Board (ESRB) acknowledged the resilience of the banking system but concluded that financial stability risks in the EU remain elevated amid high geopolitical uncertainty. The General Board members agreed that the lower inflation over the past year has reduced risks to the non-financial private sector. At the same time, macro risks have remained elevated on the back of heightened geopolitical tensions, which could further disrupt global trade and slow down economic activity. Further escalation of geopolitical tensions could also lead to higher commodity prices, with possible adverse implications for households and firms in the EU. The General Board also considered whether the EU could draw lessons from last year’s bank runs in the United States and Switzerland. In this context, the General Board acknowledged that the robust profitability and low level of non-performing loans observed in 2023 have increased the EU banking sector’s resilience to future shocks. The subdued economic growth outlook might, however, gradually weigh on banks’ profitability and asset quality. Regarding financial markets, the General Board took note of investors’ strong risk appetite and high asset valuations in some market segments and concluded that the risk of disorderly adjustments in financial markets remains severe. Possible market corrections could be amplified by high credit and liquidity risks in the non-bank financial intermediation sector.

Regarding the macroprudential policy stance, the General Board noted that countries are taking measures to enhance banking sector resilience. In this respect, the Board welcomed the fact that 27 European Economic Area countries have built up – or are building up – releasable capital buffers in the form of countercyclical capital buffers and/or systemic risk buffers. However, there may still be scope to increase the share of releasable capital buffers without necessarily raising current capital levels. Having a sufficient releasable capital buffer is key to permit enabling macroprudential policymakers to react when risk materialises.