By Francesco Canepa FRANKFURT, March 5 (Reuters) - Euro zone banks face only a limited direct impact from the war in Iran, but the larger danger lies in how a weakened economy might feed back into
Exclusive-Euro zone banks face multiple threats from Iran war, ECB supervisor says
Euro Zone Banks' Exposure and Risks Amid Iran Conflict
By Francesco Canepa
FRANKFURT, March 5 (Reuters) - Euro zone banks face only a limited direct impact from the war in Iran, but the larger danger lies in how a weakened economy might feed back into lenders’ balance sheets, a senior European Central Bank supervisor told Reuters.
In a wide-ranging interview, Pedro Machado addressed concerns stretching from Middle East tensions to the recent wobble in private markets, while warning that a boom in complex securitisation deals merits closer scrutiny.
Impact of Middle East Tensions on Euro Zone Economy
The threat of a broader conflict in the Middle East has sharpened fears of another inflation burst and renewed pressure on growth in the euro zone, which depends on Gulf suppliers for some of its gas and on Suez Canal routes for Asian goods.
Direct Exposure of Euro Zone Banks
Machado, one of the ECB’s top bank watchdogs, said euro zone banks' direct exposure to Iran and Israel was small relative to their ability to absorb losses at 0.7% of core capital for assets, such as loans, and 0.6% for liabilities like bank bonds.
"Even if you include neighbouring countries, the exposures are pretty contained, representing slightly less than 1% of supervised entities' total assets," he said in an interview.
Large euro zone banks have assets worth 27.8 trillion euros ($32.32 trillion), according to the latest ECB data, meaning 1% of that would be worth 278 billion euros.
Machado did not quantify the exposure for individual banks, consistent with the ECB's communication policy.
Broader Economic Risks
The more consequential risk, he added, lies in any renewed surge in energy prices feeding into inflation and, ultimately, a slowdown that would squeeze borrowers.
"In the long term if we have energy prices heating up, we might have an inflation spike with recessionary potential impacts in terms of economic activity," Machado said. "And this translates into a potential impact on unemployment, which is a variable that is quite important for banks."
Shadow Banks and Securitisation Concerns
Recent Turbulence in Private Credit Markets
SHADOW BANKS IN FOCUS
Machado downplayed the relevance for European lenders of the recent turbulence in U.S. private credit - most recently at Blackstone's flagship fund - saying he had not seen "any particular evidence" of spillover.
ECB's Focus on Synthetic Securitisations
But he said the ECB was sharpening its focus on synthetic securitisations, in which banks shift portfolio risks to outside investors using derivatives or guarantees. Supervisors want to ensure the risk does not boomerang back into the banking system through indirect financing channels.
Data Collection and Regulatory Oversight
"We intend to collect individual information on those transactions to then try to have a much more aggregate view on those, both in terms of volume but also in terms of potential exposure through the back door," he said.
Synthetic risk-transfer deals have been booming, rising 85% in the first half of 2025 from a year earlier, helped by changes in regulation.
Additional Information
($1 = 0.8602 euros)
(Editing by Kirsten Donovan and Nick Zieminski)
