The global financial system has faced a series of events that have impacted European banks in 2023. The crisis in the USA and Switzerland, as well as prolonged periods of high rates, have created three main risks for European financial institutions.

The bankruptcy of major financial institutions in the USA and Switzerland could have far-reaching consequences for European banks. This creates uncertainty in the financial markets and can lead to a reduction in trust in the banking system as a whole. European banks, especially those with close ties to the crisis companies or dependent on them, may face a high risk of default and capital loss.

Prolonged periods of high rates can put significant pressure on European banks. High rates complicate access to financing and increase credit costs for banks. This can negatively affect profitability and overall financial stability of banks. Higher borrowing costs can also increase the risk of loan defaults and raise the level of arrears.

The crisis in the USA and Switzerland can lead to a weakening of the regulatory environment in European countries. In conditions of financial instability, some governments may be forced to relax regulatory requirements or postpone reforms to support the banking system. This can create additional risks and reduce the transparency and stability of bank operations.

Loan issuances in European banks have fallen tenfold. Despite warnings from the ECB, eurozone banks remain in a winning position from the rate hike cycle. How long will this trend continue?