Politis

Warning on Financial Stability Due to Geopolitical Risks

Published January 23, 2026, 05:18
Warning on Financial Stability Due to Geopolitical Risks

The European Central Bank (ECB) and the European Systemic Risk Council (ESRC) are warning of increasing risks to financial stability due to geopolitical fragmentation and tensions. A joint report highlights that geopolitical shocks can intensify economic pressure, limit growth, and negatively impact financial markets. According to the report, geopolitical risks have increased significantly since the mid-2010s and are expected to continue rising in 2024 and 2025. This increase in uncertainty leads to tighter financial conditions, higher risk premiums, and reduced lending appetite. The analysis shows that banks with smaller capital buffers or significant exposure to high-risk countries are particularly vulnerable to the effects of geopolitical shocks. These banks have reduced both the likelihood of granting new loans and the average loan amount. The report emphasizes that the interaction between political and economic factors has become more pronounced, making risk prediction and management more difficult. Despite the increased instability, financial markets have so far shown limited or short-lived volatility, but the long-term effects on the real economy are expected to be negative.