ESAs spring risk update highlights geopolitical pressures and rising private finance risks

The European Supervisory Authorities (EBA, EIOPA, and ESMA) published their spring 2026 Joint Committee update on risks and vulnerabilities in the EU financial system. The update emphasizes challenges from ongoing geopolitical tensions and developments in private finance.

Geopolitical tensions, including the war in the Middle East, pose significant risks through higher energy prices, inflationary pressures, and weaker economic growth. Risks of market repricing and liquidity reductions could lead to increased volatility and revaluations. Higher interest rates may tighten funding conditions and impact asset quality. Tensions around the Strait of Hormuz and airspace closures add multi-line risks, although war exclusions are expected to limit insurer losses. Cyber-attacks and geopolitical events could also cause shocks and infrastructure disruptions.

The update highlights emerging risks in private finance driven by limited data, low transparency, prolonged growth, and complex interconnections. These factors increase the potential for sudden market shifts and spillovers. Recent developments in US private credit funds, linked to AI-driven changes, illustrate vulnerabilities related to investor sentiment shifts.

Despite these challenges, the EU financial sector remains resilient. Capital and funding positions in insurance and occupational retirement sectors are strong. Banking sector capital ratios are high, with solid liquidity and asset quality. Direct exposures to affected countries are limited.

The ESAs’ Joint Committee urges supervisors and market participants to maintain vigilance. This includes proactive risk assessments, prudent management of sovereign exposures, and considering geopolitical factors in risk management. Monitoring of indirect effects from energy prices and sector exposures is recommended.

Institutions, authorities, and investors should closely monitor risks in private markets, especially in light of limited transparency, rising exposures, and upcoming Solvency II 2027 changes.

This update was presented at the EU’s Economic and Financial Committee (FST-EFC) meeting on March 19-20, 2026, as input from the ESAs.