European supervisors tell financial institutions to stay alert to stability risks in uncertain and volatile times

The ESAs caution that sudden structural changes in global trade and security have led to a deterioration in the economic outlook in the first half of 2025. Despite the initial moderate impact of the US-EU preliminary trade agreement, risks to financial stability and the risk of further corrections remain.

The European financial system has demonstrated its resilience. Banks continue to generate solid profits, insurers hold strong solvency positions, and pension funds remain well-funded. Market infrastructures and money market funds have also proven robust in the face of volatility.

Growing transatlantic tensions, however, are reshaping the risk landscape. Tariffs and currency shifts are impacting commodities and foreign exchange markets and create new channels through which risks can spread to financial institutions. Strong interlinkages with US financial markets deepen undertakings' sensitivity to these risks.

Against this background, the ESAs advise national supervisors, financial institutions and market participants to:

• continue embedding geopolitical risks in their day-to-day business operations and risk assessments, including their dependencies on non-EU markets and service providers,
• prepare for short- and medium-term challenges amid high uncertainties, such as market corrections, by maintaining adequate provisions and stress testing their liquidity positions,
• strengthen vigilance against cyber risks and their potential impact on operational and financial stability, also via third-party service providers,
• monitor contagion risks from crypto assets as the market expands and interlinkages between crypto markets and the traditional financial sectors deepen,
• play an active role in supporting the Savings and Investments Union (SIU) initiative while duly considering the liquidity characteristics and risk profiles of alternative investments and their suitability for retail investors.