European banks are much stronger, better supervised, and taking fewer risks than during the subprime crisis or the eurozone crisis. However, their actions will remain volatile. For diversified investments in the sector, the SPDR MSCI Europe Financials UCITS ETF is recommended. It is well diversified and invested in multiple banks (like HSBC, Santander) and insurance companies (such as Allianz, Zurich Insurance).
If the conflict in the Middle East continues, it would have significant effects on bank activities. Prolonged increases in energy prices would fuel inflation, forcing interest rates to remain high. With higher financing costs, businesses delay projects and households become more cautious in major purchases, directly impacting credit sales and bank profits. Weakened European growth or recession would increase the risk of credit default. Banks would need to increase provisions for doubtful debts, weighing on their results.
In the European Union, only 2% of outstanding credits are considered high risk by banks and supervisors, a low level far from the peak of around 7.5% reached after the eurozone crisis in 2012. ECB investigations show that banks have already tightened conditions to limit the risk of new defaults. Stress tests conducted by the ECB in 2025 show that even in very unfavorable scenarios, European banks remain overall strong. They should be able to continue paying dividends (although some share buybacks may be suspended) and funding the economy.
Regarding insurers, the impact of the crisis remains limited for now. Contracts usually exclude damages directly linked to acts of war, significantly reducing potential exposure. European supervisors consider the insurance sector to be solid. The main concern remains the value of their bond portfolios: an increase in defaults or a decrease in bond prices could reduce security margins, but without truly threatening stability.
