With 64 banks participating and a severe but plausible adverse scenario for the period 2025–2027, the recent conclusion of the 2025 stress test by the European Banking Authority (EBA) provides a snapshot of the resilience of major banks in the eurozone in a context of increasing global uncertainty. The adverse economic scenario envisaged is more severe than that of the 2008 financial crisis and recent macroeconomic developments, with real GDP in the European Union (EU) falling by -6.3% from the starting point in 2024 to the end of the stressed period in 2027. In addition, the EBA conducted complementary sensitivity analyses to explore how key variables, such as interest rates or tariffs, could deviate from the adverse scenario. These analyses illustrate the potential for more pronounced losses in specific sectors under alternative macroeconomic conditions, underscoring the need for more adaptable risk management frameworks.

Eurozone banks, supported by a decade of capital strengthening and improved profitability due to the recent rise in interest rates, have demonstrated a greater ability to withstand adverse shocks than in the past. In particular, total losses in the exercise were around €500 billion, translating into a capital reduction of -370 basis points, a more robust figure than that recorded in the results of the 2023 exercise. In absolute terms, the figure is comparable to this year’s US stress test, although more severe in relative terms (capital reduction). The methodology used incorporates simplifying assumptions, such as excluding corrective or adaptive measures over the three-year timeframe, keeping banks’ balance sheets constant despite the economic shock, and considering conservative hedging established by the EBA. These assumptions, introduced to ensure comparability, are considered by institutions to be of little relevance from an economic point of view.

As this is not a pass or fail test, the ECB goes beyond the quantitative results and, by giving greater weight to qualitative assessments, has identified deficiencies, particularly in internal reporting systems and risk data aggregation. The exercise has been particularly demanding from an operational point of view, as the calculations have been carried out for the first time, and in advance, under the new CRR3 regulatory framework, which limits the capital benefits attributable to internal models. However, the ECB has intensified its review of submissions through on-site quality checks. Some institutions may now face more detailed supervisory follow-up, particularly with regard to model governance and stress testing frameworks. This exercise has combined a new regulatory framework with increased supervisory requirements, offering a preview of future challenges.

Looking ahead to 2026 and beyond, further developments in the exercise are expected. The EBA is currently exploring the role of top-down elements in European-wide stress tests, with a particular focus on credit risk. The 2023 exercise introduced a top-down model to project net fee and commission income, while the 2025 exercise also centralised projections on net interest income. Climate and ESG risks have so far been assessed through parallel and specific exercises, but supervisors could integrate them into the main framework. Indeed, instead of treating transition and physical risks as marginal, future scenarios could directly incorporate phenomena such as disorderly spikes in carbon prices or extreme weather events, forcing banks to assess the impact of stranded assets or climate-related defaults. The 2025 scenario, however, focused on geopolitical fragmentation – tariffs and energy price rises – and the next development points to specific ‘war game’ type exercises. The ECB plans reverse stress tests on geopolitical shocks to assess whether abrupt energy cuts, large-scale cyber incidents or the breakdown of international trade could trigger systemic tensions. In a context of geopolitical uncertainty, these scenarios will be essential for prudential supervision.

In essence, the 2025 exercise has transformed stress tests from mere compliance tools into proactive supervisory tools. They now serve to guide the configuration of capital buffers, detect governance deficiencies and require banks to have agile, data-driven risk frameworks. In the immediate future, institutions will need to be able not only to withstand a recession, but also to navigate climate crises and geopolitical shocks. Between biennial cycles, specific thematic exercises – on cyber resilience, liquidity stress or climate risks – will keep the attention of both banks and supervisors. The latter, by collecting more data from the banking system, will tend towards a more supervisor-led exercise, which would be less operationally demanding for institutions but probably more standardised.

Carla Azori, Senior Regulatory Affairs Manager, Accuracy
Philippe Wüst, Partner, Accuracy