The ECB’s close cooperation on supervising banks in Bulgaria and Croatia

The close cooperation arrangement for Bulgaria and Croatia poses challenges for the ECB that we discuss in terms of existing and emerging risks and vulnerabilities in the two banking sectors. The focus is on three risk areas: money laundering, climate change risk, and geopolitical tensions related to the Russia-Ukraine conflict. The high political and economic uncertainty arising from this conflict requires a reassessment of existing risks (such as credit and sovereign risks) and sources of new risks. These risk drivers are intertwined and can affect supervised entities through existing vulnerabilities at the bank as well as at the country level, primarily poor asset quality and the weak institutional framework.