European Central Bank

Traditional exposure measures focus on direct exposures to evaluate the losses an institution is exposed to upon the default of a counterparty. Since the Global Financial Crisis of 2007-2008, the importance of indirect exposures via common asset holdings is increasingly recognized. Yet direct and indirect exposures do not to capture the losses that result from shock propagation and amplification following the counterparty's default. In this paper, we introduce the concept of \higher-order exposures" to refer to these spill-over losses and propose a way to formalize and quantify these.

How does environmental, social and governance regulation of banks affect capital provision to the sustainability transition? As ambitious sustainability targets face funding challenges, the financial sector is tasked with channeling more private capital into sustainable investments. However, scaling sustainable technologies often requires investment in non-ESG-compliant assets. The mobility transition to electric vehicles, for example, demands increased supply of battery raw materials like Lithium, Cobalt, Manganese, and Nickel.

How does environmental, social and governance regulation of banks affect capital provision to the sustainability transition? As ambitious sustainability targets face funding challenges, the financial sector is tasked with channeling more private capital into sustainable investments. However, scaling sustainable technologies often requires investment in non-ESG-compliant assets. The mobility transition to electric vehicles, for example, demands increased supply of battery raw materials like Lithium, Cobalt, Manganese, and Nickel.

This box examines euro area household perceptions of rising defence spending, a trend reinforced by EU governments’ commitments at recent security discussions. According to the May 2025 ECB Consumer Expectations Survey, 81% of households anticipate increased defence spending within the next year. Public debt is seen as the most likely source of financing, followed by cuts in other spending and tax hikes. Households predict a slight increase in inflation in response to higher defence spending, while their expectations on growth are more varied.