Stress tests
European banking supervision uses stress tests to assess how well banks are able to cope with financial and economic shocks. Stress test results help supervisors identify vulnerabilities and address them early on in the supervisory interaction with banks.
Types of stress tests
The ECB conducts several types of stress tests:
- Annual stress tests
- EU-wide stress tests led by the European Banking Authority (EBA), complemented by the ECB’s stress test under the Supervisory Review and Evaluation Process (SREP)
- Thematic stress tests
- Forward-looking vulnerabilitiy analyses
- Stress tests as part of comprehensive assessments
- Stress tests for macroprudential purposes (focusing on financial stability and system-wide effects rather than individual banks)
In addition to the above, specific stress tests can also be carried out on individual banks or groups of banks.
Annual stress tests
EU law requires the ECB to carry out stress tests on supervised banks at least once per year. The results of annual stress tests provide important input for the SREP in the test year.
Capital Requirements Directive (Article 100)EU-wide EBA stress tests and SREP stress tests
Every two years the EBA carries out an EU-wide stress test in cooperation with the ECB, the European Systemic Risk Board (ESRB) and the national supervisory authorities. The sample included in the test covers the largest significant banks directly supervised by the ECB. The exercise uses the EBA’s methodology and templates, as well as the scenarios provided by the ESRB. Both aggregate and individual results are published by the EBA.
For the years in which the EBA conducts its EU-wide stress test, the ECB conducts its own stress test for those banks that are under its direct supervision and which are not part of the EU-wide EBA stress test. This parallel test is part of the annual SREP cycle and uses EBA methodology, with necessary adjustments for smaller banks to ensure proportionate treatment. The results are then published by the ECB.
In 2023 the ECB will examine 57 of the euro area's largest banks, broadly covering 75% of the area's banking assets, as part of the EU-wide stress test coordinated by the EBA. The EBA plans to publish the results for the individual banks by the end of July 2023. In parallel, the ECB will conduct its own stress test for another 42 medium-sized banks that it supervises directly and that are not included in the EBA-led stress test sample. The aggregate results and selected bank-specific information will be published by the ECB at the end of July.
Thematic stress tests
In years when there is no EU-wide EBA stress test, the ECB tests significant institutions under its direct supervision against a specific kind of shock. These tests are run in cooperation with national supervisory authorities, and the ECB publishes the results on an aggregate basis.
The 2022 climate risk stress test was an unprecedented learning exercise aimed at evaluating how well banks are set up to tackle climate-related risks in different scenarios that assessed physical risks, such as heatwaves, droughts and floods, as well as short and long-term risks stemming from the transition to a greener economy.
Results showed that, despite some progress, banks still fall short of adequately accounting for climate-related risks, especially within their stress testing frameworks and credit risk models. Overall, to prepare for the green transition, banks need to step up their customer engagement to obtain better data and rely less on proxies.
The results will feed into the SREP from a qualitative point of view. All participating banks received individual results and are expected to take action accordingly. This stress test is part of our wider climate roadmap and commitment to prepare European banks for the green transition.
In 2019 ECB Banking Supervision tested banks’ resilience to idiosyncratic liquidity shocks, which were calibrated based on recent crisis episodes.
The results of the exercise were broadly positive: banks reported rather long survival periods with available cash and collateral, which would leave them significant time to deploy their contingency funding plans.
However, a number of issues deserve further attention: short survival periods in foreign currencies; potential ring-fencing risks for some banks; strategies to optimise liquidity coverage ratios (LCR); room for improvement in collateral management practices and a general underestimation of the adverse impact of a rating downgrade. The exercise also uncovered some data quality issues in regulatory reporting. These findings will help to improve the quality of supervisory reporting on liquidity going forward.
The results informed the assessment of banks’ liquidity adequacy and risk governance, but they did not directly affect supervisory capital requirements.
Forward-looking vulnerability analyses
Occasionally, to assess significant institutions’ resilience to unforeseen external developments during years in which there is no EU-wide EBA stress test, the ECB carries out forward-looking solvency-based vulnerability analyses of significant institutions under its direct supervision.
COVID-19 vulnerability analysis 2020
Results overviewRussia war vulnerability analysis 2022
Stress tests as part of comprehensive assessments
Stress tests can also be carried out as one of the pillars of a comprehensive assessment.
These stress tests are based on the EBA methodology for the EU-wide stress test, but they can be adapted to take specific circumstances into account.
EBA stress test methodologyStress tests for macroprudential purposes
The ECB also conducts stress tests for macroprudential and financial stability purposes. They tend to focus on system-wide effects rather than on individual banks and are run in a top-down manner (without the involvement of the banks). The results are published regularly in the Financial Stability Review and the Macroprudential Bulletin.
- October 2021
- Macroprudential stress test of the euro area banking system amid the coronavirus (COVID-19) pandemic
- September 2021
- ECB economy-wide climate stress test
- November 2019
- Financial Stability Review – 3.2 Evaluating the resilience of the euro area banking sector
- 29 October 2019
- Macroprudential Bulletin – The disciplining effect of supervisory scrutiny on banks’ risk-taking: evidence from the EU‑wide stress test
- 27 March 2019
- Macroprudential Bulletin – A bird’s-eye view of the resilience of the European banking system: results from the new macroprudential stress test framework
This page will be updated on an ongoing basis to reflect the latest developments relating to the stress test exercises conducted by the ECB.