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FAQ on the 2025 stress test

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

The EU-wide stress test uses 2024 year-end data to analyse how a bank’s capital position would develop over the three years to the end of 2027, under both a baseline scenario and an adverse scenario. The exercise provides supervisors, banks and other market participants with a common analytical framework to compare and assess how resilient EU banks are to country-specific economic shocks.

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

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

The objectives of the exercise are to assess banks’ resilience to adverse market developments using a consistent stress test approach, contribute to the overall SREP to ensure institutions’ capital and liquidity adequacy, foster banks’ own stress test and risk management capabilities, and enhance transparency via extended disclosures.

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

The euro area banks taking part in the EU-wide stress test, which is being coordinated by the European Banking Authority (EBA), are selected to cover roughly 75% of banking assets in the euro area. To be included, banks need to have assets totalling at least €30 billion. However, banks with specific business models may be excluded if the EU-wide stress test methodology is not considered suitable for assessing their resilience and capital adequacy. For 2025 the EBA sample includes 51 euro area banks under the direct supervision of the ECB.

For directly supervised banks that are smaller and thus excluded from the EBA sample, the ECB carries out its own stress test exercise in parallel. In 2025 the number of banks in this parallel stress test is 45.

Some directly supervised banks do not take part in either stress test. This occurs, for example, if they are subsidiaries or branches of banks from outside the Single Supervisory Mechanism (SSM) that are participating in the EU-wide exercise. Other reasons for exclusion might be that a bank is currently undergoing restructuring or is taking part in a merger or acquisition.

When will the ECB publish the results and what information will be made available?

The results of the stress tests will be published in early August 2025.

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

For the banks participating in the parallel ECB stress test, the ECB will publish aggregate results and selected bank-specific information. As these banks are smaller than those participating in the EU-wide exercise, the amount of information published for this sample will be proportional to the size of the banks.

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. Instead, the exercise provides key inputs to the SREP for each bank. In practice, this means that the stress test results (in particular, the capital depletion) will be used as a starting point for setting the P2G (as provided for 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.

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

How are the stress test results integrated into the SREP?

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

  • Qualitative outcome

The stress test provides insights into the risks and vulnerabilities of a bank and its risk management capabilities. The JSTs consider various aspects when assessing a bank’s internal governance and risk management in the context of the SREP, and this eventually influences how the P2R is calculated. These aspects include, for instance, data quality, the timeliness and accuracy of data, and the quality of the information received. Similarly, quantitative metrics generated directly from IT-based data are used to provide the JSTs with measurable criteria to assess a bank’s performance as regards data quality by applying a four-level scoring system. 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.

  • 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 Common Equity Tier 1 (CET1) depletion resulting from the supervisory stress test. The buckets are based on recent supervisory experience, the SSM risk tolerance framework and how severe the stress test is. In step 2, the JSTs apply their expert judgement to adjust the P2G to the idiosyncratic profile of each bank. The JSTs can adjust this within the range of the corresponding bucket and, exceptionally, beyond the range of the bucket.

In the 2025 SREP the ECB will also apply the methodology to determine the 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 will use the leverage ratio projections in the adverse scenario of the stress test as a starting point and will follow the same two-step approach described above for the P2G.

What will the ECB do with banks that submit insufficiently prudent projections?

In the past, the ECB has observed that some banks submit projections that are overly optimistic, meaning that they do not fully reflect the impact of the stress test scenario and methodology, given the specific risk profiles of those banks. To counter this, the ECB will introduce a suite of measures to disincentivise insufficiently prudent projections. The measures will be mutually reinforcing and form an escalation ladder, with more stringent measures being introduced only when previous measures have proven insufficient.

As part of these measures, banks that display this type of behaviour will face additional scrutiny throughout the quality assurance phase, potentially including on-site visits. Based on insights gathered during such visits and the overall outcome of the quality assurance, some banks may be subject to on-site inspections after the conclusion of the stress test to identify structural weaknesses in their stress testing framework and to foster improvements in their stress testing capabilities. As a last resort, banks that repeatedly fail to remedy issues in the stress testing framework may eventually face other measures as part of an escalation process in subsequent exercises.

Why is the ECB going to conduct a scenario analysis of counterparty credit risk in addition to the EU-wide and ECB stress tests?

The counterparty credit risk (CCR) analysis is not part of the EU-wide stress test but will be run broadly in parallel with it. It is a deep dive into banks’ CCR exposures to non-bank financial intermediaries (NBFIs) and aims to follow up on some deficiencies in stress test practices identified by the ECB in targeted CCR reviews.

The exercise will strengthen our understanding of how supervised banks model CCR in diverse stress conditions and the vulnerabilities they have from interlinkages with NBFIs.

Addressing shortcomings in credit risk and CCR management frameworks is part of the SSM supervisory priorities for 2024-26 and 2025-2027.

Although the EBA methodology covers some elements of CCR exposures, the ECB’s analysis will have some additional key features, including a focus on the largest non-bank financial counterparties, the introduction of multi-scenario analysis, and a focus on liquidity to complement the focus on solvency.

How is the sample of euro area banks that will take part in the additional CCR analysis selected?

The banks selected to participate in the additional CCR analysis are:

  • global systemically important banks (GSIBs);
  • banks with significant exposures to NBFI counterparties;
  • banks with significant CET1 depletion owing to CCR in the 2023 EU-wide stress test;
  • ad hoc additions based on the supervisory expertise of JSTs.

The names of the banks participating in the CCR analysis will not be published.

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