European Central Bank supervisor, Alberto Machado, has warned that Euro zone banks face multiple threats from the Iran war, including a weakened economy that could potentially feed back into lenders' balance sheets. Machado stated that while banks' direct exposure to Iran and Israel is small, their ability to absorb losses at 0.7% of core capital for assets, such as loans, and 0.6% for liabilities like bank bonds is also small. The bigger risk lies in a surge in energy prices, potentially leading to a slowdown in borrowers. The ECB is focusing on synthetic securitisations, where banks shift portfolio risks to outside investors using derivatives or guarantees, and aims to ensure this does not return to the banking system through indirect financing channels.