Banking on Uncertainty: Thriving Through the Tariff Storm (Boston Consulting Group)

Summary

• The US hiked import duties on April 2, taking the average tariff to around 23%, a tenfold increase from the previous year.p.2
• US bank stocks plunged nearly 10% on the first day after the announcement, while European bank indices fell around 5%.p.2
• Geopolitical shocks amplify credit, market, liquidity and operational risk for banks.p.3
• BCG proposes a 4-step geopolitical risk quantification approach for financial institutions.p.4
• European sanctions enforcement has increased more than 500% since 2020.p.6

Key insights

1. Regional US banks are vulnerable to the tariff shock because of concentrated local loan portfolios, while large US G-SIBs benefit from diversified revenue.p.3
2. European banks face pressure from weak economies, low loan demand and tighter margins amid anticipated ECB rate easing.p.3
3. Banks with concentrated lending to autos, energy or semiconductors face higher credit risk from disrupted supply chains.p.4
4. Traditional stress tests are inadequate for geopolitical shocks, so banks need an integrated approach from scenario generation to business-specific risk.p.4
5. Top performing banks establish cross-functional war rooms to react to new sanctions within hours.p.6
6. Geopolitical divisions may split the financial tech stack, requiring modular, interoperable systems.p.7