The Banco de España has issued a warning regarding "maximum uncertainty" stemming from tariffs imposed by U.S. President Donald Trump, highlighting the potential ramifications for the European financial system.

During the presentation of the annual supervision report, Mercedes Olano, the bank's General Director of Supervision, emphasized the need for increased vigilance in light of the ongoing situation.

"Maximum uncertainty and maximum vigilance are required from all supervisors.

We are continuously monitoring the varying impacts these tariffs may have on the financial system," Olano stated.

Currently, no tariffs have been announced on financial services; thus, any impacts will be indirect, potentially affecting bank customers due to first-order tariff increases.

Olano remarked, "This is what we are observing and monitoring very closely.

There is maximum uncertainty, and we do not know what will happen." However, she reassured that liquidity ratios within European banks are at record highs, diminishing the likelihood of short- or medium-term liquidity issues.

In response to these developments, the Banco de España has intensified its oversight of credit portfolios within financial institutions, a standard practice that predates the current tariff situation.

The bank has requested Spanish banks to incorporate adverse scenario analyses that take into account geopolitical risks.

These analyses aim to identify which segments of their credit portfolios might be most vulnerable to different measures.

These adverse scenarios are generated by the institutions themselves, as they are better acquainted with their credit portfolios and business models, according to Olano.

Following the development of these scenarios, the Banco de España challenges them to identify any deficiencies.

"If we determine that a scenario is not sufficiently adverse or does not accurately reflect the situation, we can stress-test it further," she added.

Regarding whether banks have already begun allocating provisions to cover current tariff-related risks, Olano indicated this is unlikely due to the recency of the situation, noting that there were no significant increases in credit provisions in the financial accounts for 2024. However, she suggested that banks could utilize the extensive provisions made during the pandemic, as the risks then did not materialize.

This would allow them to reallocate those provisions for other current objectives or risks, including geopolitical factors.

These institutions can establish temporary funds with certain provisions, which they would then distribute across specific scenarios once they integrate the risks from the adverse scenarios they develop into their internal models.