EBA & ECB 2025 EU-wide stress testing exercise

The EU-wide stress testing exercises conducted by EBA and ECB have become a central tool for assessing the resilience of European banks. In an environment shaped by geopolitical tensions, shifting macroeconomic risks, and the transition to Capital Requirements Regulation (CRR) III, supervisors are tightening their expectations for robust capital planning, reliable earnings buffers, and effective operational resilience. Building on these insights, our analysis highlights where banks have strengthened their positions, where structural vulnerabilities persist, and how institutions can better prepare for the growing supervisory focus ahead.
 
The results make clear: earnings reserves remain the key source of stability, but in the adverse scenario they were only able to limit the average CET1 ratio erosion to around 370 basis points. Pressure stemmed in particular from rising administrative costs, sector-specific credit risks in the area of retail, commercial real estate and SMEs, as well as market risk losses from widening credit spreads. Moreover, banks with a higher share of Stage 2 and Stage 3 exposures experienced almost double the capital depletion of their peers. Going forward, it will be essential to apply more granular risk modelling, strengthen sector-specific PD/LGD approaches, and demonstrate strict cost discipline in order to meet heightened regulatory expectations.