FRANKFURT, Oct 4 — The ECB’s banking supervisor today warned banks against easing capital requirements for energy suppliers and traders struggling with huge volatility in the sector, as this could enhance the vulnerability of financial institutions.

Europe is in the throes of an energy crisis after Russia choked off fossil fuel supplies to the continent following its invasion of Ukraine.

Surging gas prices in particular have left some energy traders and suppliers scrambling for liquidity.

The ECB’s banking supervisor Andrea Enria noted that the risks of energy price inflation and gas rationing may well "spill over further” to some banks, depending on how much additional liquidity the banks may extend to energy traders and suppliers.

"I would caution against the idea, currently debated, of relaxing the existing margining requirements, as the latter were designed to protect the system precisely in times of stress,” he warned.

Enria’s warning came as consumers and businesses in the eurozone are navigating a tough environment of record inflation, with a gloomy economic outlook due to the ongoing war in Ukraine.

The consumer price shocks and subsequent interest rate rises by central banks worldwide to tamp down inflation are fuelling fears of defaults.

Enria noted that the upward interest rate environment has "played out well” for banks so far, but he stressed that they must "remain alert to developments in the risk outlook”. — AFP