In an interview with Milano Finanza, Claudia Buch says European banks are currently in a strong position, with solid profitability, high capitalisation and historically low levels of non-performing loans. However, she repeatedly stresses that uncertainty is rising, particularly due to geopolitical and macro-financial risks, and that current favourable conditions should not be extrapolated into the future.
Buch urges banks to use their strong profitability to invest in long-term resilience, including capital buffers, digital infrastructure, ICT systems and operational capabilities. While she does not expect supervision to constrain lending, she notes that uncertainty among households and corporates may dampen loan demand.
On digitalisation, Buch welcomes increased competition from digital banks and fintechs, highlighting efficiency gains, faster payments and the growing use of artificial intelligence. At the same time, she warns that rapid growth and digital business models can amplify risks, especially cyber risk, outsourcing dependencies and governance weaknesses. She confirms that around 90% of ECB-supervised banks already use AI, and that understanding AI-related risks and biases will be a supervisory priority over the next three years.
Cyber resilience emerges as a central concern. Buch notes that cyberattacks have intensified and doubled in recent years. While ECB stress tests show banks are generally prepared, deficiencies remain at individual institutions, particularly in recovery speed, data aggregation and management information.
On credit risk, Buch highlights that non-performing loans are near decade-low levels (around 2%), though some pressure is emerging in commercial real estate and SME lending. She cautions that geopolitical shocks and prolonged uncertainty have not yet fully fed through to banks’ balance sheets. The ECB will therefore intensify scrutiny of underwriting standards, which it sees as an early warning indicator for future NPLs.
Regarding capital distributions, Buch notes that banks’ aggregate payout ratios are around 50–60%, with buybacks accounting for roughly one-third. While dividend decisions remain with banks, supervisors expect institutions to carefully balance shareholder returns against future risks.
She identifies macro-financial and geopolitical risks, along with operational resilience, as the ECB’s top supervisory priorities. Climate- and nature-related risks have improved, but further work is needed, while data quality and risk governance remain weak points at some banks.
On competitiveness and consolidation, Buch stresses that supervision is border-neutral within the banking union. The ECB does not promote specific merger outcomes but assesses domestic and cross-border mergers using the same prudential criteria. She underlines that better market integration and scale could improve efficiency, provided risks are properly managed.
Buch strongly supports continued implementation of Basel III, including the Fundamental Review of the Trading Book (FRTB) from 2027, arguing that clarity and global standards are essential and that the capital impact for EU banks should be manageable.
Addressing concerns about the digital euro, she says banks should see it as a support for their digital business models, not a threat. In her view, non-bank private payment solutions pose a greater competitive challenge to incumbent banks than a public digital currency.
Finally, Buch calls European deposit insurance the missing pillar of the banking union and urges political progress. Reflecting on her first two years as Chair, she describes the period as demanding but productive, with supervision adapting to a tougher risk environment while pursuing reforms to become more agile and resilient.
(bankingsupervision.europa.eu)
