French banks are well positioned to navigate short-term market volatility, but a prolonged political crisis could weigh on the sector via lower growth in lending and higher funding costs, partially reversing recent improvements in profitability.

Unresolved divisions in France’s parliament risk exacerbating political instability and associated credit challenges given large budget deficits and rising public debt.

UK banks’ credit fundamentals are strong. While we do expect some asset-quality weakening, profitability will remain high in 2025, capital is robust, liquidity is stable and deposits are growing. Meanwhile, sector consolidation will continue.

We continue to expect a mild deterioration in asset quality as pressure in some corporate sectors intensifies amid heightened geopolitical risk and a potential slowdown in global trade.

Buoyant markets, a resilient US economy, rising customs revenues, appeasement by trading partners and conducive politics point to further escalation in US trade tensions, already set to cut global output by an estimated 0.7pps in the medium term.

The UK Supreme Court judgment partially reversing the Court of Appeal ruling on car finance provides widespread relief to the banks affected as it will materially reduce compensation payouts. The FCA redress scheme will further moderate credit pressures.

Stress-test results demonstrate the improvements Italian banks have made in recent years. Capital positions are comfortable, asset quality is robust and profitability is resilient. Record first-half results point to another strong year.

The Austrian government's planned fiscal consolidation is unlikely to stabilise general government debt-to-GDP over the next five years without further measures to help offset rising structural spending pressures amid the weak outlook for economic growth.

The EU bank stress-test results align with our view that banks’ credit profiles are resilient and would help soften the impact of rising economic and other challenges on credit risk. But risk is skewed to the downside.

Higher US tariffs on imports from the EU represent an external headwind for Ireland’s export and corporate-tax dependent economy but the 15% tariff increase looks manageable without materially challenging the strong public finance outlook.