José Manuel Campa interview with Handelsblatt: ‘Risks in the financial system remain high’

  • Interview
  • 27 MARCH 2023
José Manuel Campa analyses unrealised losses in bank balance sheets and speaks about the recent bank failures and the causes of bank runs.

Frankfurt. The European Banking Authority (EBA) continues to expect troubled times ahead after the collapse of Silicon Valley Bank and the emergency merger between Credit Suisse and UBS. ‘Risks in the financial system remain very high’, said EBA Chair José Manuel Campa to Handelsblatt. Rising interest rates are also putting pressure on financial markets. ‘Such a drastic change in interest rates increases not only opportunities for banks, but also risks.’

‘The EBA is closely monitoring unrealised losses in the banks’ balance sheets, said Mr Campa. It had already carried out an impact study on the interest rate risks of European banks in the autumn, which is now being updated. ‘The study has not been completed yet, but I can already say that we do not expect to find significant banks for which there are significant solvency risks due to unrealised losses.’

The head of EBA is ‘relatively satisfied’ with the state of the European banking sector.



Mr Campa, a few days after the collapse of Silicon Valley Bank, the large Swiss bank Credit Suisse was rescued. Why has the uncertainty following the failure of a Californian regional bank spread so quickly to Europe?

This mainly had an impact on Switzerland, not on the European Union. However, it is not surprising that such events have a global impact. Financial markets are global and the financial sector is closely interlinked. The causes of the crisis differ widely. In the United States, the poor liquidity management of Silicon Valley Bank played a decisive role, while Credit Suisse was in the midst of a strategic reorientation that left some issues open.

What conclusions did you draw from the crisis?

Risks in the financial system remain very high. In addition, rising interest rates weigh on financial markets. Such a drastic change in interest rates not only increases opportunities for banks, but also risks.

You stress that no banks in the EU have faltered so far in the wake of SVB and Credit Suisse. What makes you so optimistic that this will remain the case?

Optimism is the wrong word. Of course, as a bank regulator, I am always cautious and uncertainty is high. But I am, on the whole, relatively satisfied with the state of the banking sector in the EU. Average capital and liquidity ratios are high, which is a good starting point.

In a crisis, financial markets will always seek out the weakest link – and there are banks in the EU that have invested in sovereign bonds, as did Silicon Valley Bank and Signature Bank, which has also collapsed.

We have examined the EU’s key banks and we did not identify any business models that are similar to those of Silicon Valley Bank and Signature Bank. These US banks were heavily dependent on customer deposits without deposit guarantees and had invested large amounts in fixed-income bonds, for which they did not write off their losses.

In Europe, too, there are many banks that account for bonds in such a way that they do not have to write off losses.

There are unrealised losses on banks’ balance sheets that we are closely monitoring. Already in the autumn, we carried out an impact study on interest rate risks of European banks, which we are currently updating. The study has not been completed yet, but I can already say that we do not expect to find significant banks for which there are significant solvency risks due to unrealised losses.

Strong criticism has been directed at the emergency merger of Credit Suisse and UBS, not least because Credit Suisse shareholders were treated better than certain subordinated creditors. The rights of the UBS shareholders were also undermined. The Swiss emergency solution did not follow the standard scripts developed globally for such cases. Does this disappoint you?

No. No crisis is like the other, and one needs to be pragmatic to get to grips with it. Not every aspect can be foreseen and regulated in advance.

So the bank resolution rules are not worth the paper they were written on? Does this means that large banks will again be rescued by state treasuries or central banks?


I see things differently. Each resolution authority needs a selection of different tools and a certain degree of flexibility to use them. This has happened in the US and also in Switzerland.

What lessons do you take away from the collapse of Credit Suisse and Silicon Valley Bank? Do banks require stronger regulation?


In my view, the most important thing is that we finally implement the rules developed in the aftermath of the 2008 financial crisis. And that we do not water them down in their implementation.


A few months ago, you signed a joint letter with ECB Chair of the Supervisory Board Andrea Enria and ECB Vice-President Luis de Guindos in which you criticise the EU’s intention to soften the agreements.

Yes. And we need to act faster. We are talking about a crisis that took place between 2007 and 2009. And in 2023, we are still discussing the implementation of the rules by which we want to eliminate the weaknesses that existed at the time. It cannot be said that we are acting too soon.

The EBA is conducting a new stress test this year. Among other things, the stress test simulates rising geopolitical tensions and a slump in gross domestic product, while liquidity risks, which became a problem for Credit Suisse and SVB, have not been considered. Why?

A stress test is not a crystal ball that can be used to predict the future. The aim is to identify potential vulnerabilities on banks’ balance sheets. We rely on a static bank balance sheet and examine how this would develop in the event that interest rates rise sharply, economic output collapses and real estate and share values fall. This scenario is plausible and serious. However, this would be so severe that it is unlikely to materialise.

However, it appears out of place that the most significant risk today, namely liquidity risk, plays no role.

I see things differently. Bank runs, or mass withdrawals of deposits, are not the main risk in a bank. A bank run is only a reaction to existing risks in a bank, to which depositors and investors respond with deposit flight.

You state that each stress test is the harshest ever conducted. Some bankers find these stress test assumptions absurd and question the value of the findings produced by scenarios that are highly unlikely to materialise.

Three years ago, the coronavirus pandemic demonstrated how suddenly economic activity can collapse. Until then, we had never experienced anything like this. A stress test must go beyond known facts and circumstances. A specific feature this year is that it is the first stress test in which we look at the effect of rising interest rates. This had never been done since the launch of the EBA stress tests in 2011.


The interview was conducted by Andreas Kröner and Yasmin Osman

Handelsblatt (Germany)