Institutions in the financial sector are facing a growing number of risks. In particular, they need to prepare for the America-First policy of the U.S. administration, which has many different facets, says risk manager Gerold Grasshoff from the Frankfurt Institute for Risk Management and Regulation (FIRM).
The America-First policy of the U.S. administration is increasingly concerning risk managers in the financial industry. “America First has broad, deep, and probably long-lasting effects,” says Gerold Grasshoff, Chairman of the Frankfurt Institute for Risk Management and Regulation (FIRM), a network of risk managers from the financial industry, regulatory authorities, and academia.
In his view, the phenomenon is usually discussed in an overly narrow way. Analyzing Trump’s tariff policy — which too often dominates the discussion — is not sufficient. Rather, a broad range of policy approaches lies behind it: “America First means active and opportunistic tariff policy, strategic industrial policy, expansionary fiscal policy, deprioritized climate policy, more restrictive migration policy, and transactional security policy. Financial institutions must position themselves strategically in response.” They should therefore prepare for the tougher stance from Washington and increasingly take its consequences into account in their business activities and risk management.
According to Grasshoff, too little attention is being paid to U.S. fiscal policy. He joined the Boston Consulting Group (BCG) in 1997 and serves there in Frankfurt as Managing Director and Senior Partner. The risks of the approach — based on tax cuts and protectionism aimed at promoting domestic production — are obvious: “The monetary stimulus can undermine confidence in U.S. government bonds and increases inflation risks as well as the possibility of a sovereign debt crisis.”
As Grasshoff points out, expansionary fiscal policy is also widespread in Europe, albeit not ideologically charged as in the U.S. Although, according to the Maastricht criteria, the debt level of an EU member state may not exceed 60% of gross domestic product, the average in the European Union stands at 82% (as of the end of March 2025). In Germany, it is 62%. The range extends from 24% in Bulgaria and Estonia to 138% in Italy and 153% in Greece.
Grasshoff questions how resilient public finances are in the face of high debt levels if inflation and interest rates rise again. Banks must deal with this issue, since many institutions hold government bonds of their home countries. This interrelationship, known as the sovereign-bank nexus, could potentially exacerbate crises.
Here to stay
Grasshoff offers little hope that Germany and Europe can expect a more accommodating trade policy in the event of a change of government in the United States. “We must assume that the U.S. trade policy, which has been bilaterally oriented under the Trump administration, will remain in place and will not change even under a subsequent administration,” he says.
And as if the risks arising from the America-First policy were not enough, Europe must, according to him, prepare for further challenges: “Based on everything we know, the U.S. will not tighten regulation but will likely deregulate — meaning Basel IV will probably not be implemented,” Grasshoff expects. For Europe, this means focusing on effective regulation. “It must be examined how financial stability can be ensured with fewer and simpler rules, while at the same time supporting growth and innovation — in other words, competitiveness,” the risk manager warns.
According to Grasshoff, Europeans must focus their attention on competitiveness. After all, it creates the preconditions for strengthening their own capabilities in defense and security policy as well as in industrial and technological leadership. Both are indispensable in order to remain a sovereign actor in global politics during geopolitically tense times like these.
There is therefore no shortage of macroeconomic, technological, and geopolitical challenges — compounded by the rapid pace of change, often driven by the volatile policies of the U.S. president. “From a risk manager’s perspective, perceived uncertainty is currently higher than ever before,” is Grasshoff’s conclusion. He and FIRM identify geopolitics, technological change — particularly artificial intelligence — and the competitiveness of national economies as the biggest current risk drivers.
AI amplifies traditional risks. For this reason, Grasshoff emphasizes the importance of strong governance: “If it is not clear who is responsible for AI models, how they are implemented and applied, tested and documented, then there is a problem.” Without clear rules, it becomes impossible to control the models and to understand and trace decisions.
“Banks cannot operate AI models that produce result A today and result B tomorrow,” says the risk manager. For this reason, applications are currently largely limited to support functions — analyzing large volumes of data and extracting information from documents. This mainly concerns information and communication technology in areas such as coding, research, and sales support. Humans remain involved at all times.
Welcomes new stress test
Grasshoff has a favorable view of the new concept behind this year’s ECB stress test. Instead of providing banks with predefined scenarios and having them calculate the impact on their capital and liquidity buffers, each institution will this time be required to envision geopolitical events that could lead to a drop in their Common Equity Tier 1 (CET1) ratio by at least 300 basis points, and to assess how these events would affect liquidity and refinancing conditions. A total of 110 banks directly supervised by the ECB must undergo this stress test on geopolitical risks, with the results expected to be published in the summer.
Grasshoff welcomes this new approach: “Building stress tests solely on past data and developments falls short.” After all, this merely simulates how a bank would perform under the parameters of previous crises. “The real idea should be to develop scenarios that reflect expected structural breaks. In this context, attention should also be paid to the so-called reverse stress test — that is, the question of what would actually constitute an existential risk for the bank. This also includes exposure to China.”
Source: Börsen-Zeitung, 13.2.2026
