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European banks must brace themselves for rising insolvencies, greater geopolitical risks and upheaval in energy-intensive industries, the eurozone’s new chief banking supervisor has warned. Claudia Buch, who became chair of the European Central Bank’s supervisory arm in January, said in an interview with the Financial Times that banks were “not out of the woods yet” despite emerging in what she said was a “good position” after the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine.
The ECB’s increase in its benchmark interest rate to a record high of 4 per cent to tackle soaring inflation last year “still has to filter its way through the financial system”, Buch said, adding that bankruptcies and loan defaults were likely to keep rising for some time. “It’s just extremely unlikely that we would have a period of structural change where there’s no increase in defaults,” she said.
Europe’s “industrial regions will look very different in the future, depending on the availability of renewable energy in different countries”. “We will have more relocation of activities, we will have more sectoral relocation . . . firms have to adjust,” she predicted. “This is something banks have to factor in.” European insolvencies fell sharply in 2020-22 when governments provided vast amounts of aid to companies to blunt the impact of the pandemic and the energy crisis caused by Russia’s war. But they have since risen higher than pre-pandemic levels, as stagnant growth, rising borrowing costs and high energy prices took their toll on more companies....
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