Although Donald Trump will not take office for another two months, he is already dominating the agenda. At the presentation of the Financial Stability Review last week, ECB Vice President Luis de Guindos sidestepped naming the likely source of expected trade disputes, which could have a significant impact on banks' earnings and profit prospects. However, in view of growing macroeconomic and geopolitical uncertainties and increasing trade policy uncertainties, financial stability in the eurozone is by no means in a rosy state, the head of the ECB stated in the report, without referring to the horse and rider, i.e. the future US president and his entourage. Trump is the elephant in the room.

There is talk of a planned increase in US tariffs to 10% on all imports, and 60% on imports from China. Trade conflicts instigated by Washington would further cloud the economic outlook, fuel insolvencies, drive up inflation, and call the central banks into action. They are alarmed. Bundesbank President Joachim Nagel believes that monetary policy has a duty to counter inflationary pressure in the event of trade conflicts. The head of ECB Banking Supervision, Claudia Buch, has also recently warned financial institutions to ensure financial and operational resilience in the face of increasing geopolitical frictions, and to update their risk management. Conventional risk models are reaching their limits.

The ECB is also addressing a nasty brew: High sovereign debt, weak growth and political uncertainty harbour all the ingredients of a possible new sovereign debt crisis, according to the bank supervisors. This in turn would drive up banks' risk provisioning, depress the value of collateral, and keep their income and profits low.

The elephant, which is all too visible but which people don't like to talk about openly, will hopefully not be joined by a black swan, a dramatic event that takes everyone by surprise – natural disasters or unforeseeable wars, for example. We would be no better off with the appearance of the grey rhino, which stands for an event that is foreseeable but not addressed – bank failures, an attack on Taiwan, or a renewed sovereign debt crisis, for example. After all, looking at the latest Financial Stability Review, no one can say that the supervisors did not issue a warning.