FRANKFURT (Reuters) – Eurozone banks must watch their sources of funding or risk being “caught off guard” by rising interest rates, head of sector oversight Andrea Enria said on Tuesday. bank within the European Central Bank (ECB).
Banks are strong but sharp rise in borrowing costs since 2022 means they can no longer rely on cheap funding and rising financial markets, he said at report launch annual review of the ECB’s supervisory activities.
“Rising interest rates and quantitative tightening require banks to devote more attention to liquidity and funding risks,” said Andrea Enria, in an introduction made before recent upheavals in the global banking system.
“Some banks could be taken by surprise in this way,” he warned.
The report warns banks of a likely decline in the economic value of their equity as borrowing costs rise.
This is the problem faced by the American bank Silicon Valley Bank, which found itself short of liquidity when its customers rushed to withdraw their money.
“Banks should adopt strong and conservative asset and liability management modeling practices to account for changes in consumer preferences and behavior during changes in interest rate regimes,” Andrea added. Enria. “They should also carefully monitor the risks associated with derivative hedging instruments.”
After a series of scandals and setbacks, Credit Suisse also suffered massive cash outflows, leading Swiss federal authorities to orchestrate its takeover by UBS.
Big eurozone banks had leverage ratios averaging 5.2% in the third quarter, according to the report, one of the lowest levels seen since the start of European banking supervision but still well above requirements and regulatory buffers.
(Francesco Canepa, French version Laetitia Volga, edited by Kate Entringer)
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