During its 56th regular meeting on November 28, 2024, the General Board of the European Systemic Risk Board (ESRB) raised concerns about heightened financial stability risks in the European Union (EU). The Board noted that over the past three months, increasing political uncertainty and escalating geopolitical tensions have intensified systemic vulnerabilities.
The ESRB identified several potential triggers for tail risk scenarios. These include the imposition of significant new trade restrictions, the ongoing escalation of Russia’s war in Ukraine, and the intensification of the Middle East conflict. In addition, the EU is grappling with cyberattacks and hybrid warfare activities, further compounding macroeconomic, credit, and market risks. These factors are contributing to heightened market volatility and increased stress on balance sheets for firms, sovereign entities, and, to a lesser extent, households.
Concerns were also raised about a potential disorderly adjustment in global financial markets. The General Board observed stretched valuations in assets like U.S. stocks, crypto-assets, and high-yield debt instruments, underscoring the need for close monitoring. The disconnect between these market developments and the Board’s systemic risk assessments highlights the urgency of preemptive measures.
The Board also highlighted the risks associated with potentially looser regulatory standards in non-EU jurisdictions. Such regulatory environments may encourage excessive risk-taking by banks and non-banks, particularly in emerging areas like crypto-assets. To address these challenges, the ESRB emphasized the importance of maintaining or even enhancing the EU’s robust regulatory and supervisory frameworks, especially in the face of evolving financial market dynamics. Strengthening crypto-asset regulation and boosting the resilience of the EU financial system were highlighted as key priorities.
Cybersecurity risks were a focal point of the discussion, with the Board noting the high concentration risk posed by reliance on third-party providers and the systemic threats hybrid attacks pose to critical infrastructure. The ESRB called for enhanced data collection and coordination among regulators to address these cyber-related risks effectively. The Board also welcomed the upcoming implementation of the Digital Operational Resilience Act (DORA) on January 17, 2025. This regulation will be complemented by a pan-European systemic cyber incident coordination framework, as outlined in Recommendation ESRB/2021/17.
Additionally, the ESRB released the 50th issue of its risk dashboard, a comprehensive tool comprising quantitative and qualitative indicators that measure systemic risk within the EU financial system. This dashboard serves as a critical resource for monitoring and managing emerging threats to financial stability.
As the global and regional financial landscape continues to evolve, the ESRB’s meeting underscored the need for proactive measures to address systemic risks. By fostering resilience, enhancing regulatory standards, and improving coordination, the EU aims to navigate these challenges and safeguard its financial stability.