This report examines the funding structure of EU banks, focusing on their dependence on foreign currency funding. It analyzes the net stable funding ratio (NSFR) of EU/EEA banks, as well as their exposure by currency and maturity. The conclusions address the implications of this dependence for the financial stability of banks.
This report by the European Banking Authority (EBA), published in November 2025, analyzes the funding structure of banks in the European Union (EU) and the European Economic Area (EEA) as well as their dependence on foreign currency funding. It is based on prudential reporting data (COREP and FINREP) as of December 31, 2024, covering approximately 93 to 97% of total assets of the European banking sector according to analyses. The scope covers banks registered in the EU/EEA, with a focus on significant currencies other than each bank's national currency, notably the US dollar (USD), British pound (GBP), Swiss franc (CHF), Japanese yen (JPY), and other European and non-European currencies. The report is part of a mandate from the European Commission aiming to produce annual indicators on the market share of non-EU entities and on foreign currency exposures of European banks for the period 2024-2027.
This report examines the funding structure of EU/EEA banks and their exposure to foreign currencies, particularly so-called significant currencies, as of December 31, 2024. It responds to a mandate from the European Commission to monitor European banks' dependence on foreign currency funding and the market share of non-EU entities in the European banking sector.
European banks show a stable weighted average Net Stable Funding Ratio (NSFR) of 127.6%, well above the regulatory threshold of 100%, and stable compared to the end of 2023. However, differences exist by currency: the NSFR is above 100% for most significant currencies but below 100% for the Norwegian krone (NOK) and Japanese yen (JPY). The USD NSFR is 101%, down from 107% at the end of 2023 but significantly improved from 83% in June 2021. 27% of banks with significant USD exposure have an NSFR below 100% in this currency, and 41% for GBP.
European banks obtain 21.1% of their total funding in foreign currencies according to individual data, up from 20.5% at the end of 2023. USD funding represents 13.1% of the total, slightly up (+0.7%). GBP and other foreign currency funding remain stable. Foreign currency funding is mainly provided by unsecured wholesale funding (67%), followed by repurchase agreements (15%), demand deposits (5%), and covered bonds (4%).
European banks' foreign currency exposures represent 32% of their total exposures, up from 28.4% at the end of 2023. USD exposures constitute 23% of the total, up 3.7 points. These exposures are mainly loans (70%), followed by off-balance sheet commitments (14%), liquid assets (5%), and assets with central banks (4%).
At the consolidated level, one third of European banks' assets are in foreign currencies versus one fifth of liabilities, reflecting a significant currency mismatch, although smaller in USD (5.6 points). Regulation does not require strict currency-by-currency matching, but banks must manage these gaps, notably through hedging.
In conclusion, European banks overall have sufficient stable funding, but some show vulnerabilities in specific currencies, notably USD and GBP. Dependence on USD funding is increasing, especially at the subsidiary level, requiring increased vigilance on currency and liquidity risks.
The report responds to a mandate from the European Commission given in May 2024, following a first study in 2021 and a report published in 2022. This mandate requires the EBA to produce annual indicators on the market share of non-EU entities in the European banking sector and on the concentration of their activities, as well as to analyze European banks' exposures and funding in foreign currencies.
The objective is to better understand European banks' dependence on foreign currency funding, notably in USD, and to identify potential risks related to mismatches between assets and liabilities in currencies. The report covers banks registered in the EU and EEA, based on consolidated and individual prudential reporting data (COREP and FINREP) as of December 31, 2024.
Analyses focus on the total NSFR and by significant currency, funding structure by type and currency, funding maturities, and exposure composition by currency. Limitations include differences between consolidated and individual data, and the exclusion of non-EU subsidiaries in some analyses. The report is intended to be produced annually until 2027.
NSFR and stable funding:
- The weighted average NSFR of EU/EEA banks is 127.6% at the end of 2024, stable compared to 127.3% at the end of 2023, and above the regulatory threshold of 100% (p. 12-14).
- By currency, the NSFR is above 100% for EUR, USD (101%), GBP (102%), but below 100% for NOK (87%) and JPY (86%), the latter representing 2% of stable funding (p. 13-14).
- 27% of banks exposed in USD have a USD NSFR < 100%, 41% for GBP, with disparities by country (p. 13).
Funding structure:
- Total funding is mainly provided by demand deposits (23%), followed by unsecured wholesale funding (44%), secured funding (16%), and savings and term deposits (17%) (p. 16-18).
- According to FINREP, deposits represent 63.6% of the balance sheet, other debt securities 12.9%, covered bonds 5.5% (p. 16-17).
- Use of wholesale funding is higher in Luxembourg (79%), Germany (54%), Belgium (51%), and Sweden (51%) (p. 17).
Foreign currency funding:
- According to the first methodology (banks with significant foreign currency funding), 25.2% of total funding is in foreign currencies according to consolidated data, 21.1% according to individual data (p. 20, 25).
- USD funding represents 16.9% (consolidated) and 13.1% (individual) of the total, up 1.2% and 0.7% respectively since 2023 (p. 23, 28).
- GBP funding is stable around 2.3% (consolidated) and 1.2% (individual) (p. 23, 28).
- Foreign currency funding is mainly provided by unsecured wholesale funding (57% consolidated, 67% individual), followed by repurchase agreements (15% consolidated and individual) and demand deposits (5% consolidated, 11% individual) (p. 21, 26).
Funding maturity:
- The share of short-term stable funding (< 12 months) is 73% on average, stable compared to 2023 (p. 32-33).
- Some countries (Lithuania, Belgium, Poland) have high dependence on short-term funding, but mainly in domestic currency (p. 32).
Foreign currency exposures:
- Total exposures of EU/EEA banks mainly consist of loans (53%), off-balance sheet commitments (16%), liquid assets (11%), and assets with central banks (10%) (p. 34-35).
- 35.7% of exposures requiring stable funding are in foreign currencies according to consolidated data, 32% according to individual data, up since 2023 (p. 36, 40).
- USD exposures represent 22.5% (consolidated) and 23% (individual) of the total, up 3.4% and 3.7% respectively (p. 37, 40).
- Foreign currency exposures are mainly loans (58% consolidated, 70% individual), off-balance sheet commitments (17% consolidated, 14% individual), and liquid assets (10% consolidated, 6% individual) (p. 37, 41).
Currency imbalance:
- At the consolidated level, one third of assets are in foreign currencies versus one fifth of liabilities, reflecting a currency mismatch of 10.5 percentage points, smaller in USD (5.6 points) (p. 44).
- This imbalance requires prudent management, notably through hedging, even though regulation does not require currency-by-currency matching (p. 7, 44).
Findings:
- The weighted average NSFR of EU/EEA banks is 127.6% at the end of 2024, all banks above the regulatory threshold (p. 12-14).
- 21.1% of total bank funding is in foreign currencies according to individual data, 25.2% according to consolidated data (p. 20, 25, 26).
- USD funding represents 13.1% (individual) to 16.9% (consolidated) of the total, up since 2023 (p. 23, 28).
- Foreign currency exposures represent 32% (individual) to 35.7% (consolidated) of total exposures, with a USD share of 22.5% to 23% (p. 37, 40).
Assumptions:
- The methodology distinguishes two approaches: one including only banks with significant foreign currency funding/exposure, the other including all banks, impacting calculated ratios (p. 19, 35).
- Consolidated data may overestimate the share of foreign currency funding because non-euro subsidiaries appear as foreign currency (p. 8, 19).
Interpretations:
- The increase in USD funding, more marked at the subsidiary level, indicates growing dependence on the dollar, with potential liquidity and currency risks (p. 44).
- The imbalance between assets and liabilities in foreign currencies, although tolerated by regulation, requires prudent management to avoid vulnerabilities in case of currency shocks (p. 44).
Uncertainties:
- Individual data exclude non-EU subsidiaries, which may limit visibility on the overall exposure of banking groups (p. 8).
- The absence of regulatory requirement for currency-by-currency hedging may lead to heterogeneous practices among banks (p. 7, 44).
The report concludes that EU/EEA banks overall have sufficient stable funding to cover their needs, with a total NSFR above 100% for all banks. However, vulnerabilities remain at the level of individual currencies, notably for the US dollar and British pound, where a significant share of banks show an NSFR below 100%.
Dependence on foreign currency funding, particularly in USD, increased in 2024, especially at the subsidiary level, highlighting the need for ongoing monitoring of risks related to currency and liquidity mismatches. Unsecured wholesale funding is the main source of foreign currency funding.
Foreign currency exposures are higher than corresponding liabilities, reflecting a significant currency mismatch that must be managed prudently, notably through appropriate hedging.
The report implicitly recommends continuing annual monitoring of these indicators to track the evolution of risks related to foreign currency funding and exposures, without recommending specific regulatory measures in this document.
Synthesis note written from the full document by DataSAI Academy. This note comes from the scientific library of the DataSAI Academy, open to all.