Europäische Zentralbank

What could Europe’s demographic shift mean for banking supervision? In his latest blog post, Supervisory Board member Patrick Montagner highlights that:   📊 𝐃𝐞𝐦𝐨𝐠𝐫𝐚𝐩𝐡𝐢𝐜 𝐬𝐡𝐢𝐟𝐭𝐬 𝐚𝐫𝐞 𝐫𝐞𝐬𝐡𝐚𝐩𝐢𝐧𝐠 𝐭𝐡𝐞 𝐞𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐟𝐨𝐮𝐧𝐝𝐚𝐭𝐢𝐨𝐧𝐬 𝐨𝐧 𝐰𝐡𝐢𝐜𝐡 𝐛𝐚𝐧𝐤𝐬 𝐨𝐩𝐞𝐫𝐚𝐭𝐞. An ageing population tends to save more, borrow less and favour lower-risk investments. Fewer younger households mean fewer new mortgages and business loans, while a larger retired population means there is greater demand for liquidity and wealth management products. ⚙️ 𝐃𝐞𝐦𝐨𝐠𝐫𝐚𝐩𝐡𝐢𝐜 𝐜𝐡𝐚𝐧𝐠𝐞 𝐚𝐟𝐟𝐞𝐜𝐭𝐬 𝐦𝐚𝐜𝐫𝐨𝐞𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐯𝐚𝐫𝐢𝐚𝐛𝐥𝐞𝐬. A shrinking working-age population slows potential growth, while labour shortages could increase wages and compress profit margins. In turn, productivity may suffer if firms invest less or face difficulty replacing retiring workers.   🔍 𝐓𝐡𝐞𝐫𝐞 𝐚𝐫𝐞 𝐩𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐢𝐦𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬 𝐟𝐨𝐫 𝐛𝐚𝐧𝐤𝐬’ 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐦𝐨𝐝𝐞𝐥𝐬.  As retirees pay off their debt and less young people borrow, there may be a lower demand for mortgages, putting downward pressure on property valuations. This affects collateral quality and potentially increases loan-to-value ratios. As urban migration increases, deposit bases in certain rural areas may come under pressure. There might also be a rise in demand for digital banking channels, wealth management and retirement planning services. Understanding the implications of ageing populations for banks’ business models, income structures and asset valuations may help ensure that the financial sector remains adaptable as Europe navigates a new demographic era.   Find the link to Patrick Montagner’s blog post in the comments 👇

In the 5th edition of our hackathon series ‘From News to AI Forecasts’, we brought together 64 economists, data scientists and computer engineers from 27 institutions, which included national central banks, banking supervisors and the ESM - European Stability Mechanism. This year’s 24-hour challenge focused on three areas: 📊 Deriving new economic indicators from real-time global news. 🧠 Enriching economic analysis by combining traditional and new indicators. ⚙️ Refining AI time series foundation models to improve economic forecasts. Beyond the new indicators, models, and prototypes generated, the biggest takeaway was a deeper understanding of how AI can enhance medium-term forecasts and the energy that comes from cross-disciplinary collaboration. A big thank you to our jury - Yana Djoneva, João Sousa, Luc Laeven, Christophe Kamps, Joan Paredes and Rafael Garcia Oliva -, to our tech evaluators, and to all ‘players’ for their creativity, dedication, and passion.

When it comes to the risks to financial stability, things seem to have settled down a bit. But with trade tensions, an unpredictable US economic policy, geopolitical issues, a potential AI bubble and the rise of stablecoins, there is plenty to keep an eye on. In the latest episode of The ECB Podcast, our host Paul Gordon speaks with financial stability expert John Fell about the factors affecting financial stability in the euro area. They discuss: 🫧 𝐀 𝐩𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐀𝐈 𝐛𝐮𝐛𝐛𝐥𝐞 𝐢𝐧 𝐬𝐭𝐨𝐜𝐤 𝐦𝐚𝐫𝐤𝐞𝐭𝐬. Some AI company valuations look stretched, and there is considerable leverage behind AI investments. Returns will largely depend on how widely AI is adopted and whether it becomes a general-purpose technology like the railways did. 📈 𝐑𝐢𝐬𝐢𝐧𝐠 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐬𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐬𝐤𝐬 𝐬𝐭𝐞𝐦𝐦𝐢𝐧𝐠 𝐟𝐫𝐨𝐦 𝐩𝐫𝐢𝐯𝐚𝐭𝐞 𝐜𝐫𝐞𝐝𝐢𝐭 𝐦𝐚𝐫𝐤𝐞𝐭𝐬. Private markets are playing an increasingly significant role in financing AI-related companies and infrastructure, contributing to growing risks in the euro area. 🪙 𝐒𝐭𝐚𝐛𝐥𝐞𝐜𝐨𝐢𝐧𝐬 𝐚𝐧𝐝 𝐭𝐡𝐞𝐢𝐫 𝐫𝐞𝐥𝐚𝐭𝐞𝐝 𝐫𝐢𝐬𝐤𝐬. Despite what the name suggests, stablecoins carry liquidity run risks that, at scale, could affect financial stability. With rapid growth and expanding links to traditional finance, the potential for contagion increases. Want to find out more? Check out the link to the full episode in the comments 👇

In a volatile global environment, it is crucial to pay close attention to risks and vulnerabilities affecting the financial system. We analyse a wide range of risks in our Financial Stability Review, including the impact of trade uncertainties, concerns about AI and linkages between banks and the non-bank financial sector. Swipe left to find out what’s happening in the financial system ⬅️

Did you know that more than one in ten women in the EU experience economic violence? This means, for example, an abuser restricting their access to money or taking away their earnings. 25 November is the UN International Day for the Elimination of Violence against Women. It’s the start of sixteen days of activism aimed at ending gender-based violence in all its forms. The colour orange symbolises hope and a brighter future free from violence against women and girls. To increase awareness, we’ve raised orange flags. There is #NoExcuse for gender-based violence. #OrangeTheWorld #EndViolenceAgainstWomen

Hybrid threats like cyberattacks, economic influence or coercion, and disinformation by state actors have made the risk landscape more complex, says Supervisory Board member Anneli Tuominen. Strengthening banks’ operational resilience, governance and contingency planning is key. Find the link to the full speech in the comments 👇

📢 Our latest edition of Supervision Spotlight is here! This edition looks at how bullet loans – also known as “interest-only loans” – expose property lenders to heightened refinancing risks. We outline good practices for banks to manage the related risks, using observations from our on-site inspections. Interested? Read the newsletter for the full picture. And subscribe to stay up to date with all things banking supervision.

In a fireside chat at the J.P. Morgan European Financials Conference, Supervisory Board member Pedro Machado discusses resilience and innovation in the banking sector. Here are the key takeaways:   𝐖𝐞 𝐧𝐞𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐯𝐢𝐠𝐢𝐥𝐚𝐧𝐭 𝐚𝐛𝐨𝐮𝐭 𝐭𝐡𝐞 𝐩𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐫𝐢𝐬𝐤𝐬 𝐩𝐨𝐬𝐞𝐝 𝐛𝐲 𝐬𝐭𝐚𝐛𝐥𝐞𝐜𝐨𝐢𝐧𝐬. It’s important that we closely monitor how the rise of US dollar-denominated stablecoins could potentially lead to risk spillovers to the European banking sector and financial stability. Without safeguards, we risk being exposed to crises from outside the EU.   𝐁𝐚𝐧𝐤𝐬 𝐦𝐮𝐬𝐭 𝐚𝐝𝐝𝐫𝐞𝐬𝐬 𝐫𝐢𝐬𝐤𝐬 𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐞𝐝 𝐛𝐲 𝐧𝐨𝐧-𝐛𝐚𝐧𝐤 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐢𝐧𝐭𝐞𝐫𝐦𝐞𝐝𝐢𝐚𝐫𝐢𝐞𝐬 (𝐍𝐁𝐅𝐈𝐬). The growth of the NBFI sector requires banks to take steps to mitigate contagion. These include aggregating exposures, identifying correlations, and enhancing stress testing and governance around these risks.   𝐒𝐮𝐩𝐞𝐫𝐯𝐢𝐬𝐨𝐫𝐲 𝐚𝐧𝐝 𝐫𝐞𝐠𝐮𝐥𝐚𝐭𝐨𝐫𝐲 𝐟𝐫𝐚𝐦𝐞𝐰𝐨𝐫𝐤𝐬 𝐬𝐡𝐨𝐮𝐥𝐝 𝐛𝐞 𝐬𝐢𝐦𝐩𝐥𝐢𝐟𝐢𝐞𝐝, 𝐛𝐮𝐭 𝐬𝐡𝐨𝐮𝐥𝐝 𝐬𝐭𝐢𝐥𝐥 𝐞𝐧𝐬𝐮𝐫𝐞 𝐛𝐚𝐧𝐤𝐬 𝐫𝐞𝐦𝐚𝐢𝐧 𝐫𝐞𝐬𝐢𝐥𝐢𝐞𝐧𝐭. Resilient banks are crucial for competitiveness. We therefore need to ensure that supervision remains efficient and proportionate, while at the same time reducing undue complexity. Regulatory harmonisation is an important aspect of simplification, given its positive correlation with cross-border banking. Find the link to Pedro Machado’s full conversation in the comments 👇

We need simple, proportional and coherent rules to boost banks’ competitiveness while sustaining resilience, says Maria Luís Albuquerque, EU Commissioner for Financial Services and the Savings and Investments Union. In in our Supervision Newsletter, she outlines the European Commission’s commitment to simplification and highlights how completing the banking union will foster more integration, allowing banks to benefit from economies of scale. The latest edition also covers: 🎯 𝐆𝐨𝐨𝐝 𝐩𝐫𝐚𝐜𝐭𝐢𝐜𝐞𝐬 𝐟𝐨𝐫 𝐦𝐚𝐧𝐚𝐠𝐢𝐧𝐠 𝐫𝐢𝐬𝐤𝐬 𝐟𝐫𝐨𝐦 𝐛𝐮𝐥𝐥𝐞𝐭 – 𝐨𝐫 “𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭-𝐨𝐧𝐥𝐲 – 𝐥𝐨𝐚𝐧𝐬 Bullet loans are a key financing tool in the commercial real estate market. But they come with heightened refinancing risks, especially amid shifting market dynamics and a high interest rate environment. We outline good practices for identifying, measuring and managing the associated risks. ⚙️ 𝐇𝐨𝐰 𝐀𝐈 𝐢𝐬 𝐩𝐫𝐨𝐠𝐫𝐞𝐬𝐬𝐢𝐯𝐞𝐥𝐲 𝐬𝐡𝐚𝐩𝐢𝐧𝐠 𝐭𝐡𝐞 𝐟𝐮𝐭𝐮𝐫𝐞 𝐨𝐟 𝐛𝐚𝐧𝐤𝐢𝐧𝐠 European banks are boosting efficiency and decision-making by using AI for credit scoring and fraud detection. Our latest workshops have revealed relevant trends and challenges, as well as a need for strong governance and compliance. Find the link to the full Supervision Newsletter in the comments 👇

The post-crisis reforms have delivered what they set out to achieve, says Supervisory Board Chair Claudia Buch. More than a decade of analysis shows that they have facilitated a stronger and more resilient banking system without constraining economic growth or hindering lending. A well-designed regulatory framework provides the necessary predictability for investors and banks to plan and innovate. It ensures that European banks remain resilient and well-positioned to support economic growth, even in challenging times. While the capital regulation framework has further strengthened the banking sector, Ms. Buch emphasises that more work is needed. This includes systematic learning with continuous evaluations, stronger supervisory data infrastructure and collaboration between supervisors, central banks and academics. The link to the Chair’s full speech is in the comments 👇