Frequently asked questions on the 2025 stress test of euro area banks

1 August 2025

What’s the 2025 stress test about? What is its aim?

The stress test provides a common analytical framework to compare and assess how resilient euro area banks are to macro-financial and country-specific shocks. The 2025 stress test covers 96 banks under the ECB’s direct supervision. Of those, 51 are the euro area’s largest banks which are included in the EU-wide stress test, coordinated by the European Banking Authority (EBA). The other 45 are medium-sized banks outside the EBA sample, for which the ECB conducted its own stress test.

The stress test uses year-end data from 2024 to analyse how losses and a bank’s capital position will develop over a period of three years, to the end of 2027, under both a baseline and an adverse scenario.

The ECB will use the stress test results to assess the Pillar 2 capital needs of individual banks in the context of its Supervisory Review and Evaluation Process (SREP). The qualitative outcomes (see last question) will be included in the risk governance part of the SREP, thereby warranting supervisory measures and influencing the determination of the Pillar 2 requirement (P2R). The quantitative results will be used as a key input for setting the Pillar 2 guidance (P2G) and a leverage ratio P2G.

The exercise is designed to support financial stability and strengthen market discipline through the disclosure of consistent and granular information at the individual bank level, illustrating how common shocks affect individual banks’ balance sheets. Supervisory stress testing is not a substitute for banks’ internal stress tests, which are based on scenarios that are tailor-made for banks’ specific risk profiles and vulnerabilities.

Broader macro-financial amplification effects are not considered either, but are examined separately by macroprudential authorities in complementary top-down stress test exercises.

How is a single scenario for the stress test selected, among a variety of possibilities?

The objective of the adverse scenario is to challenge the banks' resilience and capital adequacy under severe yet plausible conditions, thereby identifying vulnerabilities and enhancing overall financial stability. The adverse macro-financial scenario is designed by the European Systemic Risk Board’s (ESRB) Task Force on Stress Testing in close collaboration with the ECB. The narrative of the stress test scenario draws on a subset of the main financial stability risks to which the EU banking sector is exposed, as identified by the ESRB General Board, and risk assessments by the EBA and the ECB.

While several alternative scenarios could be produced, the one adopted is selected with a view to preserving full consistency with European authorities’ assessment of the relevant risks. At the same time, it does so in a way that ensures internal consistency, economic interpretability and alignment with validated models, developed in cooperation with national central banks. The narrative of the 2025 adverse scenario reflects elevated geopolitical tensions that trigger uncertainty, intensify macroeconomic, credit and market risks, and make financial markets and commodity prices more volatile. In addition, it acknowledges the potential for a disorderly adjustment in global financial markets due to stretched valuations of certain assets.

To address the limitation of using a single scenario, banks are required to conduct internal stress tests (e.g. for their capital planning) and reverse stress tests. These exercises provide a more comprehensive understanding of the risks and vulnerabilities unique to each bank.

How are the samples of euro area banks in the EU-wide stress test and the parallel ECB stress test selected?

The banks taking part in the EU-wide stress test coordinated by the EBA were selected in order to cover roughly 75% of banking assets in the euro area. To be included, banks needed to have at least €30 billion in assets at the time of the sample selection. Banks with specific business models could be excluded if the EU-wide stress test methodology was considered less suitable for assessing their resilience and capital adequacy. In 2025, a total of 51 euro area banks under direct ECB supervision were included in the EBA sample.

For smaller banks directly supervised by the ECB outside the EBA sample, the ECB carried out a parallel stress test. In 2025 the total number of banks participating in this stress test was 45, which accounted for around 7% of banking assets in the euro area.

Some banks directly supervised by the ECB did not take part in either stress test. This includes, for example, subsidiaries or branches of banks outside the Single Supervisory Mechanism (SSM) that were participating in the EU-wide exercise. Other reasons for exclusion might have been that a bank was undergoing restructuring at the time or was involved in a merger or acquisition.

How does the scenario translate into capital depletion?

The stress test translates losses resulting from an adverse macroeconomic scenario into capital depletion through several transmission mechanisms. These mechanisms show how changes in the macroeconomic environment can lead to financial stress for banks in various ways:

• Net income: Increased funding costs and reduced fees and commissions income dampen banks’ ability to buffer losses. At the same time, inflationary shocks increase administrative expenses, acting as an additional drag on banks’ income-generating capacity.
• Credit losses: Economic downturns increase the likelihood of borrowers defaulting on their loans, resulting in non-performing loans. Banks must set aside additional provisions for these bad loans, which directly reduces their capital.
• Market risk: Adverse scenarios cause significant volatility and revaluations in financial markets, leading to losses on banks' trading books and investment portfolios. This reduces the value of financial assets held by banks, resulting in capital depletion.
• Operational risk: Stressed conditions heighten operational risks such as cyberattacks, fraud, system failures and compliance breaches. These events raise capital requirements, straining banks' overall reserves.

The combined effect of these mechanisms can lead to significant losses for individual banks and thus capital depletion, measured by changes in key capital ratios such as the Common Equity Tier 1 (CET1) ratio. Stress tests emphasise the need for solid capital adequacy to ensure that banks remain stable under adverse economic conditions, allowing them to continue providing financial services to households and firms even during periods of stress.

What did the stress test reveal about banks’ ability to model sector-specific risks?

Compared with the 2023 stress test, banks’ ability to model sector-specific risk has improved. This notwithstanding, there is still room for improvement. The stress test showed that many banks still rely on basic modelling approaches to assess relevant sectoral risks. For example, some banks use general assumptions with regard to macroeconomic scenarios instead of models tailored to specific industries. . These findings highlight the need for continued efforts by banks to further develop their stress test models to enhance their ability to identify sectoral vulnerabilities in a forward-looking perspective.

How well prepared are euro area banks to deal with trade tariffs, according to the stress test?

The 2025 stress test assessed banks’ resilience under a scenario of heightened geopolitical tensions and inward-looking trade policies, which included the imposition of higher tariffs and fragmented global supply chains. While the exercise did not quantify the impact of trade tariffs specifically, it did incorporate their effects into the broader macro-financial stress environment. The results suggest that the euro area banking system remains resilient overall, though highlighting vulnerabilities stemming from exposures towards sectors more exposed to international trade. Moreover, the sensitivity analysis conducted around the main results highlights the presence of significant uncertainty on the implications of trade tensions.

The stress test underscores the importance of banks being forward-looking in their capital planning and risk management. Banks are expected to anticipate and prepare for structural shifts in the global economy, including those driven by trade policy changes. The ECB’s thematic stress test on geopolitical risks, planned for 2026, further supports this forward-looking approach, helping supervisors and banks identify and address emerging risks in a timely manner. It will rely on the reporting templates and structures that banks already have in place, which should minimise additional costs and effort. Further details on the exercise will be fully disclosed when it is launched, and will be discussed with banks in dedicated rounds of consultations.

What does a “constant balance sheet” assumption, which the stress test relies on, mean?

The stress test relies on a “constant balance sheet” assumption. This means that the balance sheet of each bank is assumed to remain unchanged throughout the stress test horizon. In other words, the stress test does not account for management actions a bank might undertake in response to adverse conditions, such as raising additional capital, selling assets, or altering its business strategy. Instead, it assumes that a bank continues to provide the same volume of financial services as at the start date of the exercise (i.e. end-2024). This approach ensures consistency and comparability of results across different banks and scenarios. It also implies that effects on the real economy from banks’ dynamic responses and contagion effects reflecting the propagation of shocks between financial institutions are not considered.

Why is the stress test results report focusing on transitional figures, while the P2G determination is based on fully loaded figures?

In this year's stress test, banks needed to consider the revised Capital Requirement Regulation III (CRR3) rules that entered into force on 1 January 2025. Some of the CRR3 provisions are subject to transitional arrangements that will be gradually phased out by 2033. Fully loaded numbers assume a full implementation of the new rules but do not take into account the ability of banks to adjust their balance sheets over the coming years. Consequently, the stress test report focuses on outcomes for the capital ratios in transitional terms as these are the applicable ones for the 2025-27 scenario horizon.

For determining the P2G, fully loaded capital depletions are used. This method is the most straightforward way to set P2G starting points, separating the economic scenario impact from the phase-in effects of the CRR3.

What information on the results is available?

The EBA publishes granular results for the individual banks participating in the EU-wide exercise.

For the banks participating in the parallel SSM stress test, the ECB publishes aggregate results and selected bank-specific information. The publication approach for this sample follows the principle of proportionality, as these banks are smaller than those participating in the EU-wide exercise.

What will the ECB do with banks that have a (severe) shortfall in the adverse scenario?

As in previous years, the 2025 stress test is not a “pass-or-fail” exercise. Therefore, there is no “shortfall” in the usual sense. Instead, the exercise provides key inputs into the SREP decisions for each bank. In practice, this means that the stress test results (in particular fully loaded capital depletion levels) will be used as a starting point for setting the P2G (as foreseen in the EBA guidelines on SREP and supervisory stress testing).

In line with this approach, banks with (severe) capital depletion in the adverse scenario should generally expect a higher P2G than banks with better results.

In cases where severe capital depletion highlights particular risks in certain areas of business, the Joint Supervisory Teams (JSTs) use this information to follow up with targeted supervisory initiatives and, where appropriate, measures to ensure that those risks are properly managed.

How are stress test results integrated into the SREP?

Stress test results feed into the SREP both quantitatively and qualitatively.

1. Quantitative outcome

• The methodology for setting the P2G follows a two-step approach. In step 1, the bank is placed in a bucket according to its maximum CET1 capital depletion in the supervisory stress test. The buckets are designed on the basis of recent supervisory experience, SSM risk tolerance and statistical analysis of stress test results. In step 2, the JSTs apply their expert judgement to adjust the P2G to the profile of each bank. The JSTs can adjust this within the ranges of the corresponding bucket and, exceptionally, beyond them.
• The ECB also applies a P2G to address the risk of excessive leverage. This capital guidance seeks to ensure that a bank’s own funds can absorb potential losses resulting from stress scenarios. To set the leverage ratio P2G, the ECB uses the leverage ratio projections in the adverse scenario of the stress test as a starting point and will follow a similar two-step process as described for the P2G above. A leverage ratio P2G is imposed only for certain institutions, for example where the projected leverage ratio falls below the overall leverage ratio requirement.

2. Qualitative outcome

• The stress test offers supervisors many insights into the risks and vulnerabilities of a bank, as well as its risk management capabilities. The JSTs consider different aspects when assessing a bank’s internal governance and risk management in the context of the SREP, which eventually lead to supervisory measures and influence how the P2R is calculated. These aspects include, for instance, the timeliness and accuracy of data, as well as the quality of information received. Similarly, quantitative metrics derived directly from data aim to provide the JSTs with measurable criteria to assess a bank’s performance by applying a scoring system based on four levels. Both the ability of banks to cope with the data requirements and their responsiveness throughout the stress test are measured. In addition, JSTs carry out a qualitative assessment of the banks’ performance during the stress test quality assurance cycles.
• In this stress test, the ECB conducted short-term on-site visits to ensure the quality of the stress test projections submitted by banks. After the stress test, selected banks will face more detailed inspections focusing on their stress test capabilities. These inspections will be coordinated within the ongoing supervision of JSTs, to create synergies and minimize the extra-effort for banks.