EU-wide Stress Test 2025: Results Publication

On 1 August the European Banking Authority (EBA) and European Central Bank (ECB) published the results of the 2025 EU-wide Stress Test. In this latest iteration of the biennial stress test the EBA has examined the impact of a hypothetical economic stress on the balance sheets of 64 European banks. The ECB has then extended the test to cover virtually all of the banks under its direct supervision (96 in total).

The EBA Stress Test results show an aggregate CET1 capital depletion of €229 billion across the banks tested. This caused their CET1 capital ratio to fall from 15.76% to 12.06% (by 370 bps). This compares with a capital depletion of 479 bps in the previous EU-wide stress test in 2023. In comparison, banks in the ECB stress test had a slightly higher capital depletion of 400 bps on average.

The most significant of the capital depletion was credit losses, accounting for €394 billion / -437 bps CET 1. The expanded scope of the NPL backstop has made it increasingly clear that managing non-performing loans is becoming a critical issue for banks, not only in the context of the EBA stress test, but also at the starting point and in day-to-day operations. With the observed increase in Stage 2 exposure, banks must intensify their focus on loan work-out and restructuring to reduce capital impacts in the future. The negative impact was partially offset by additional net interest income, amounting to +1,047 bps CET1. Lower losses come from the market risk, where an increase in losses was compensated by higher client revenues derived from banks’ historical performance. Operational Risk maintains a similar level of capital depletion as in the previous stress test. Interestingly, the EBA reported that out of 71 one-off adjustment requests submitted by banks — relating to non-recurring exception expense items — 39 were approved. These approvals resulted in a +22 bps CET 1 (median) increase for banks.

The improvement in capital depletion has largely been driven by strong profitability. While stress losses remain broadly in line with previous exercises, banks’ return on equity reached its highest level in over a decade, boosting available capital. Independent of regulatory stress testing, many banks are already implementing measures to enhance efficiency — a focus that aligns closely with the ECB’s supervisory focus on cost efficiency and profitability at the heart of sustainable business models. 

The EBA also reported that compared to the last EU-wide stress test, banks have made progress in distinguishing the sectoral impact of adverse scenarios. Nonetheless, modelling efforts still require further refinement. Enhanced statistical tools to forecast sector-specific losses would increase risk sensitivity and strengthen the management of potential vulnerabilities within corporate portfolios. This will become even more relevant in the ECB’s 2026 stress test on geopolitical risk, where banks will need to analyse which specific events have impact on which of their portfolios.

This year was also the first EU-wide Stress Test to be conducted under the new EU Capital Requirements Regulation (CRR 3). This had a significant impact, especially on banks with substantial real estate-related exposures, due to the output floor on risk weights calculated using internal models. The impact of the transition from CRR2 to CRR3 is relatively consistent across countries, whereas the shift from transitional to fully loaded requirements is largely driven by country-specific business models: Germany (-284bps), France (-170bps) and Netherlands (-140bps). These three countries account for a combined Risk Exposure Amount (REA) of EUR 4.9 trillion out of a total actual REA of EUR 9 trillion. With the full implementation approach and the gradual phase-out of transitional arrangements over the coming years, affected banks will need to explore further optimization of their capital requirements — for example, by enhancing standard approaches or improving collateral management. While banks using internal models are naturally more exposed to the impact of CRR3, benchmarking reveals that several IRB institutions across the EU have navigated the transition more smoothly and appear better prepared for the new regulatory landscape. Others would be well advised to take note and begin optimizing their approaches to capital.

At the outset of the Stress Test, the ECB highlighted the importance of data quality as well as prudent assumptions during the stressed years. In particular, the ECB warned banks against overly optimistic projections of the impact of the stress on their balance sheets. In terms of qualitative results, the ECB noted that this year some banks still face difficulties in aggregating granular, loan-specific data. Correspondingly, for the first time ECB inspectors also conducted short on-site visits during the quality assurance process at banks suspected of insufficient prudence in their modelling and/or in case of indications of poor data quality. In addition, certain banks will undergo more detailed on-site inspections of their stress testing capabilities and these will be carried out in close coordination with other supervisory work. The overall stress test results will feed through into banks’ overall scores in the annual Supervisory Review and Evaluation Process (SREP), and may impact their Pillar 2 capital requirements (P2R). The total capital depletion for each bank in the Stress Test will also be the starting point for the ECB’s Pillar 2 capital guidance (P2G).

Stress Testing continues to be an important part of the supervisory toolkit, and is being extended to understand an ever broader range of risks, including geopolitical risk, climate risk and cybersecurity risk. The ECB will next year conduct its regular thematic stress test on banks under its direct supervision, with an inverse stress test on geopolitical scenarios. The recent increase in geopolitical risks remains a key concern for the macroeconomic outlook and is an area of special focus in the supervisory priorities of the ECB. The stress test will focus on complex transmission channels, requiring banks to compile a comprehensive list of geopolitical risk drivers, analyse transmission channels and assess their materiality for the business and risk profile. While reverse stress test frameworks are somewhat underdeveloped at some banks, many will be able to draw on experience from assessing other horizontal risk drivers such as ESG. The first consultation package on this topic is expected soon. Banks must be prepared to respond swiftly once the results are published, reassess their current stress testing framework, and be ready to bring together experts in scenario analysis, ESG, ICAAP, and recovery planning.