ECB moves to ensure stability in bank balance sheets amid fears for 2024

ECB raised capital requirements on 20 banks as it warned they may face a difficult year ahead

ECB: “While rising interest rates have had a positive impact on profitability so far, banks must be prepared to cope with higher funding costs, a potential fall in asset quality and a further repricing in financial markets in the short and medium term.” Picture: Getty

The European Central Bank (ECB) has warned banks they need to prepare for “volatile funding sources” as it took a series of actions to ensure stability of balance sheets in 2024.

Following its latest supervisory review, the ECB raised capital requirements, or the amount of easily sold assets banks have to hold, for 20 institutions after deciding they did not have enough cash to cover unpaid loans.

The crises this year at Credit Suisse and Silicon Valley Banks threw liquidity into the spotlight - and the ECB warned banks should not be complacent. It asked two institutions to extend their “survival period”, the number of days that their available cash and collateral can buy, and asked another to build a buffer in a foreign currency.