The Supervisory Board of the European Central Bank focused on euro area banks this Friday, reviewing how the week’s market turbulence was shaping risk and resilience. The discussions followed a series of stress events triggered by turmoil around Credit Suisse and the U.S. banking landscape, including Silicon Valley Bank, Signature Bank, and First Republic Bank. The meeting, conducted by the ECB unit responsible for bank supervision, was convened as an extraordinary session to understand how the sector is managing the latest shocks and to assess exposures across the system. [ECB]
During the board exchange, members shared impressions and updated one another on recent developments in the banking sector. Although Reuters reported the event, the ECB’s spokesperson emphasized that the meeting had a targeted focus and did not replace ordinary agenda items. The session was chaired by Andrea Enria, who led discussions on the surge in volatility and the evolving risk landscape behind the headlines. [ECB]
In fact, senior supervisors from eurozone authorities, including the Deputy Governor of the Bank of Spain, Daisy Delgado, had already met earlier in the week to align on supervisory priorities. The session was prompted by market shifts seen in the past days and aimed at pooling insights across national central banks about bank health and exposure to troubled international lenders, while acknowledging that U.S. banks are regionally diversified and that assessments require careful cross-border coordination. [ECB]
Over the course of the meeting, participants exchanged views and received briefings on how markets were evolving and how banks were adjusting to the changing environment. The supervisory board, through the national central banks, gathered information on the status of banks and any exposures that could pose risks, noting that many banks had relatively small direct ties to the affected institutions but expressed vigilance over broader liquidity and credit conditions as the situation evolved. [ECB]
Informative rather than decision-making
Given the nature of the meeting, conclusions or new policy steps were not announced. The session was framed as a briefing rather than a decision-making event, especially with a hotly anticipated Governing Council meeting on the horizon. That council holds the power to set monetary policy and deploy tools such as liquidity facilities if needed, and to signal stance on rate moves. The extraordinary session thus served to illuminate the current risk landscape and to prepare responses should market tensions intensify. [ECB]
Despite the financial turbulence, the Governing Council acknowledged the need to remain steady on the policy path, signaling a 0.5 percentage point move as previously planned while underscoring a commitment to monitor conditions and respond to unfolding developments. The message stressed continuity in safeguarding price and financial stability and ensuring a prudent, timely calibration of policy if pressures persist. [ECB]
The council also stressed the resilience of the eurozone’s banking sector, highlighting solid capital bases and ample liquidity in aggregate. It emphasized that the central bank possesses the tools necessary to provide liquidity support to the financial system if required, and to preserve the smooth transmission of monetary policy even in periods of stress. Reassurances were offered to counter fears of a broader liquidity drain from deposits and to maintain confidence in the financial system. [ECB]
Stretch
Last week and into this week, stress around major banks in the United States and Europe reverberated through markets. The turmoil linked to Credit Suisse’s difficulties and the attention on Silicon Valley Bank highlighted the need for coordinated oversight and swift liquidity responses. In response, major U.S. banks stepped in to assist First Republic Bank, reinforcing liquidity to bolster confidence. The actions underscored the interconnectedness of global banks and the importance of a coordinated supervisory approach to maintain stability across financial systems in Canada, the United States, and the broader euro area. [ECB]
Credit Suisse reportedly sought additional liquidity from its central bank to shore up balance sheet pressures, while U.S. lenders expanded the Federal Reserve’s balance sheet by providing emergency liquidity as markets fluctuated. The evolving situation demanded vigilance from supervisors and a readiness to act decisively to prevent disruptions from spreading and to safeguard the transmission of monetary policy across international markets. [ECB]