European banks face a more complex and demanding risk environment, as geopolitical tensions, uncertainty over the global economy, persistent inflationary pressures and the growing threat of serious operational incidents pose new challenges to financial stability, the Single Resolution Board (SRB) has warned. In its half-yearly report to the Eurogroup, the Brussels-based body says that despite a significant strengthening of the European banking system’s resilience over the past decade, gaps remain in the European framework for managing banking crises, making further deepening of the banking union necessary. The convergence of financial and geopolitical risks, combined with the possibility of serious disruption to banking operations, is testing the ability of banks and of supervisory and resolution authorities to respond. Preparation for the next banking crisis therefore cannot be limited to capital adequacy and liquidity, the SRB says, and must include the ability to keep critical functions running under conditions of severe operational disruption.
Multiple sources of risk
At the macroeconomic level, the conflicts in Ukraine and the Middle East, uncertainty over the global outlook and inflationary pressures continue to weigh on the environment in which banks operate. Tighter financing conditions and higher borrowing costs could affect their balance sheets and funding, while slowing economic activity could strain the ability of households and businesses to service their loans. Particular emphasis, however, is placed on non-financial risks, a category not directly linked to banks’ financial health. Cyberattacks, power cuts, telecommunications failures and attacks on critical digital infrastructure can seriously disrupt the provision of core banking services. A telling example was the widespread blackout that hit the Iberian Peninsula in April 2025, which showed how quickly a failure in basic infrastructure can affect economic activity on a large scale, potentially creating risks to financial stability. Banks’ dependence on digital systems and external providers of critical services increases their exposure to such incidents. A serious cyberattack could halt payments, customers’ access to their accounts and other core services, and in a crisis, the failure of IT systems could even hamper decision-making by the authorities.
A European deposit insurance scheme
The SRB acknowledges substantial progress in the resilience and resolvability of European banks. All institutions required to meet their final targets for the minimum requirement for own funds and eligible liabilities (MREL) from 1 January 2024 continue to do so, while the total shortfall against final targets for banks still in a transition period had narrowed to €200 million by the end of 2025, less than 0.01% of the total risk exposure amount. The European framework is nonetheless considered incomplete. One of the most significant gaps is the absence of a fully developed European deposit insurance scheme. The European Commission is examining a model in which the mutualisation of protection for the largest banks would rely on the existing architecture of the Single Resolution Fund, while smaller banks would remain covered by national deposit guarantee schemes, with a liquidity mechanism linking the two tiers. The aim is to strengthen depositor confidence so that the protection of their money does not depend on the country in which a bank or its subsidiary is located.
Ensuring sufficient liquidity when a bank is resolved is an equally important issue. The Single Resolution Fund currently holds around €81 billion, but according to the SRB, this may not be enough to deal with a crisis at one of Europe’s largest banks or the simultaneous failure of several institutions. The SRB therefore describes as an urgent priority the ratification of the revised Treaty of the European Stability Mechanism (ESM), which would allow €68 billion in additional financial support to be activated through the common backstop to the Single Resolution Fund. In the longer term, it believes a broader public liquidity mechanism should also be considered, especially for the largest international banks.
The Cypriot backlog
For Cyprus, European concerns are also linked to the management of the large stock of problem loans that remains outside the banking system. Despite a significant clean-up of bank balance sheets, transferring loans to credit acquiring companies does not mean the problem has been solved. At the end of June 2026, the portfolio held by credit acquiring companies and credit servicers stood at €19.3 billion, with 94.6% classified as non-performing. Uncertainty over proposed changes to the foreclosure framework is creating further concern. The International Monetary Fund has warned that changes widening the scope for challenging and delaying proceedings could slow the resolution of legacy non-performing loans, weaken payment culture and affect credit growth. The European Central Bank has also pointed to the impact a suspension of foreclosures could have on the management of problem portfolios and on financial stability.
The SRB links the completion of the banking union to the competitiveness of the European economy. Simplifying rules and reducing national barriers could allow banks to manage liquidity and resources more effectively across borders. Simplification, however, should not weaken resilience requirements or lead to divergence from internationally agreed standards, the SRB says.
