The Joint Committee of the European Supervisory Authorities (European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority) published its spring 2026 cross-sectoral update on risks and vulnerabilities in the EU financial system, focusing on how geopolitical tensions and the continued expansion of private finance could amplify market and funding shocks. The update also notes that the EU financial sector remains resilient overall, with banking, insurance and occupational pension sectors maintaining robust capital, liquidity and funding positions. On geopolitics, the ESAs highlight transmission channels including higher energy prices, inflationary pressures, weaker growth, sudden repricing and liquidity reductions in markets where equity valuations are elevated and bond spreads are compressed. The assessment also points to risks from higher-for-longer interest rates for funding conditions and asset quality, operational disruption risks from cyber-attacks and threats to critical infrastructure, and multi-line insurance risks linked to tensions around the Strait of Hormuz and airspace closures, with war exclusions expected to limit insurers’ net losses. On private finance, the ESAs flag limited data and transparency, complex and opaque interconnections with the broader financial system, and the potential for liquidity-driven spillovers, citing recent redemption pressures in certain US private credit funds as an illustration of how sentiment shifts can expose vulnerabilities. The Joint Committee calls on supervisors and market participants to maintain readiness through proactive risk assessments, prudent management of sovereign exposures, and the explicit incorporation of geopolitical context into risk management and monitoring of indirect effects such as energy-price shocks. Financial institutions, authorities and investors are also encouraged to strengthen due diligence and oversight of private market exposures, including potential shifts in risk profiles linked to the 2027 Solvency II review. The update was presented as ESA input to the Financial Stability Table of the EU’s Economic and Financial Committee meeting held on 19–20 March 2026.
European Banking Authority 2026-03-27
Joint Committee of the European Supervisory Authorities publishes spring 2026 risk update warning on geopolitical tensions and private finance
The Joint Committee of the European Supervisory Authorities published its spring 2026 cross-sectoral risk update, warning that geopolitical tensions and the continued expansion of private finance could amplify market and funding shocks despite the EU financial sector’s resilience. It highlights transmission channels including higher energy prices, inflationary pressures, higher-for-longer interest rates, cyber risks, multi-line insurance exposures, and data gaps and opaque interconnections in private markets, illustrated by recent redemption pressures in US private credit funds. Supervisors, financial institutions and investors are urged to strengthen geopolitical risk assessments, manage sovereign and energy-related exposures prudently, and enhance due diligence and oversight of private market exposures ahead of the 2027 Solvency II review.