Introductory statement

Speech by Claudia Buch, Chair of the Supervisory Board of the ECB, at the press conference on the 2025 SREP results and the supervisory priorities for 2026-28

Frankfurt am Main, 18 November 2025

Good morning and thank you for joining us for today’s press conference on the results of the Supervisory Review and Evaluation Process (SREP).

Let me summarise our main messages.

First, the euro area banking sector is well-capitalised and liquid. However, the sector continues to operate in an environment of heightened geopolitical risks. Market reactions to the announcement of new tariffs in April 2025 illustrate how quickly geopolitical tensions can materialise as concrete financial risks. So far, the euro area banking sector has remained resilient, but the full impact of increased tariffs on the corporate sector and on banks’ balance sheets will become visible only gradually.

Second, digitalisation offers opportunities to improve the provision of financial services. But it also increases competitive pressure and exposes banks to non-traditional risks such as cyberattacks. Banks need to upgrade their ICT infrastructures to remain competitive and resilient, and they need sound governance to contain risks.

Third, discussions on how to simplify regulation and supervision without weakening resilience have gained traction. We are actively reforming the ECB’s supervision to make it more effective and efficient – while remaining clearly focused on relevant risks. This creates space – for banks and for us – to adequately respond to evolving risks.

Weakening regulation or supervision would, instead, have negative implications for resilience, the competitiveness of banks, and their ability to lend. Well-capitalised banks are indeed better able to serve the economy.

Over the coming years, our supervisory priorities will focus on banks’ responses to the changes in the external environment, on strengthening banks’ resilience to geopolitical risks and macro-financial uncertainties and on banks’ operational resilience and ICT capabilities.

Resilience and profitability of banks supervised by the ECB

This year’s SREP provides a prudential assessment of banks supervised by the ECB.

Overall, the euro area banking sector remains well-capitalised. The average Common Equity Tier 1 (CET1) ratio stands at 16.1%, up slightly from last year (15.8%). The leverage ratio has increased marginally and remains just below 6% (Chart 1).^[1]

Chart 1

CET1 capital and leverage ratio of significant institutions

Liquidity positions remain comfortable. The average liquidity coverage ratio stands at 158%, the net stable funding ratio at 127% (Chart 2). Favourable financing conditions are reflected in relatively tight bank bond spreads. However, banks’ growing reliance on market-based funding could pose risks in times of stress.

Chart 2

Liquidity ratios

Profitability levels have stabilised. The average return on equity across significant institutions currently stands at around 10% and thus 4.5 percentage points above the levels observed during the period of low interest rates.^[2] This increase was largely driven by higher net interest margins, although this effect gradually levels off (Chart 3). Differences across banks and countries remain marked, reflecting varying interest rate pass-through, provisioning dynamics and cost efficiency.

Generally, banks’ cost-to-income ratios declined from 66% in 2020 to 54% this this year, mainly reflecting higher interest rates. Looking ahead, banks will have to weigh cost control against sufficient investment in ICT and cyber-resilience.

Chart 3

Return on equity and net interest margin

So far, aggregate asset quality has remained sound. The average non-performing loans (NPL) ratio has remained roughly stable at 1.9%, significantly lower than in the past decade.^[3] But there are pockets of vulnerabilities: above-average NPL ratios for commercial real estate loans, at 4.6%, and for loans to small and medium-sized enterprises (SMEs), at 4.9%, warrant attention. The ratio of stage 2 loans, which signals an increase in credit risk for performing loans, has trended upwards in recent years (Chart 4).

Chart 4

Non-performing loans and stage 2 loans ratios

A stable euro area picture masks diverging non-performing loan dynamics across countries; broadly speaking, there has been a declining trend in countries with previously high levels of non-performing loans and an increasing trend in countries starting from lower levels (Chart 5).

Chart 5

Net non-performing loan flows and ratios in the second quarter of 2025 by country

(x-axis: basis points, y-axis: percentages)

Looking ahead, bank profitability remains subject to downside risks from weaker growth, higher provisioning needs and pressure on interest margins. Banks could face higher credit risks if tariffs affect the financial soundness of corporations or if the economy weakens.

SREP assessment and stress test results for 2025

In terms of our supervisory assessment of banks’ risks and risk controls, the average overall SREP score for 2025 has slightly increased compared with last year, moving closer to 2-. The distribution of scores shifted towards the centre: the scores of institutions rated below-average tended to improve, whereas the scores of banks rated above-average slightly deteriorated (Chart 6). Overall, one-quarter of banks remain in the weaker categories (scores 3-4).

Chart 6

Overall SREP scores

Qualitative SREP measures to address supervisory findings were issued for 100 banks. The number of new qualitative measures decreased by roughly 30% compared with last year. This reflects our clearer focus on material weaknesses as well as progress made by banks in addressing previous supervisory concerns.

Credit risk remains the most important driver of banks’ risk-weighted assets. Some 40% of supervisory measures focus on credit risk, such as the need for banks to address persisting weaknesses in provisioning policies. We particularly focus on exposures to sectors with relatively high credit risk – for example, commercial real estate or SME lending.

Measures related to internal governance (17%) and capital adequacy (11%) also featured prominently, underscoring the continued supervisory attention to banks’ decision-making frameworks and capital planning processes.

Another 10% of supervisory measures address operational risk related to cyber risks or deficiencies in risk management systems. Moreover, many banks show persistent deficiencies in their internal information systems, which impairs the ability of managers and boards to take well-informed decisions.

Quantitative requirements complement these qualitative measures. For 2026, the overall capital requirements and guidance applicable to banks under ECB supervision will remain broadly stable at 11.2% of CET1, compared with 11.3% this year (Chart 7).

Chart 7

Developments in overall capital requirements and Pillar 2 guidance

(percentages of risk-weighted assets)

Capital headroom across the system remains healthy: no institution is expected to have capital levels below the required sum of overall capital requirements, buffers and guidance (Chart 8).

Chart 8

Distribution of capital headroom between CET1 capital ratios and CET1 overall requirements and Pillar 2 guidance after the 2025 SREP

Our assessment of bank-specific risks is reflected in broadly stable Pillar 2 requirements: in 2026 an average Pillar 2 requirement of 1.2% of CET1 will apply, which is slightly higher than that applicable in 2025 (1.1%).

Pillar 2 requirements capture risks not covered or insufficiently captured by Pillar 1 requirements, which set the minimum capital that all banks must maintain against credit, market and operational risks. When setting the Pillar 2 requirement as a legally binding requirement determined through the SREP, we assess which risks are captured under Pillar 1 and apply Pillar 2 only to risks that are insufficiently covered. For example, interest rate risk in the banking book falls outside the standard Pillar 1 framework.

In past years, the ECB has applied targeted P2R add-ons in areas such as insufficiently provisioned non-performing exposures and leveraged finance exposures. In 2025 the number of banks subject to the NPE and leveraged finance add-ons declined, as some banks remediated previous findings. Ten banks were subject to an add-on for insufficiently provisioned non-performing exposures – down from 18 last year. For six banks, the Pillar 2 requirement included a leveraged finance add-on – down from nine last year. In parallel, the ECB applied a leverage ratio Pillar 2 requirement to 14 banks because of an elevated risk of excessive leverage – up from 13 banks last year.

Pillar 2 guidance will decline to 1.1% on aggregate in 2026, compared with 1.3% in 2024 and 2025.^[4] Pillar 2 guidance is informed by the EU-wide stress test 2025, the adverse scenario of which was motivated by higher geopolitical risk and escalating trade tensions.

The small decline in Pillar 2 guidance reflects two factors.

First, in the adverse scenario, aggregate losses would increase by 14% to €628 billion. Non-performing loans would increase to 5.8%, reaching levels last seen in 2014.^[5]

Second, higher profits would absorb part of these losses. The overall capital depletion would be about 100 basis points lower than in the stress test conducted in 2023.

While P2G is not binding, it serves as a key reference for assessing banks’ capital resilience. For example, banks’ distributions need to be anchored in sound capital planning under credible baseline and adverse scenarios.

Data collected during the stress test also provide information on the effects of Basel III implementation. Transitional agreements significantly reduce the initial impact: on aggregate, the impact of the Capital Requirements Regulation 3 (CRR3) on banks’ capital requirements was close to zero in 2025.^[6] Capital requirements even declined for some banks. Since the beginning of this year, European banks have had to comply with CRR3, which implements the internationally agreed Basel III rules in Europe. A key element is the output floor, which limits how much banks can reduce their capital requirements by using internal models, rather than the standardised approach, to calculate risk weights.

Banking sector resilience and the real economy

Several factors are behind the current resilience of the euro area banking sector.

Over the past decade, improved regulation, supervision and risk management of banks have made the banking system better capitalised and more resilient.

Moreover, firms and households have remained financially sound even though the European economy has been hit by severe shocks over the past years. A robust labour market has underpinned household incomes and debt servicing capacity, supporting asset quality.

Not least, there was sizeable fiscal support to households and firms, with fiscal packages during the pandemic amounting to 4% of GDP in the euro area.^[7] In subsequent years, measures introduced to shield against energy price shocks were in a similar range.^[8] Indirectly, these measures have protected the financial sector from higher credit losses during recessionary periods.

This needs to be considered when assessing banks’ resilience to future shocks. With fiscal policy becoming more constrained, the financial sector needs to have strong buffers. In a stress scenario, banks that are unable to raise additional equity would otherwise have to scale back their activities.

Maintaining capital buffer requirements thus remains important for preserving resilience.^[9] In this regard, macroprudential policy complements our work by addressing risks to financial stability arising from second-round effects and contagion. Since the pandemic, macroprudential buffers that can be released in times of stress have increased. The average level of the countercyclical capital buffer in CET 1 applicable in 2026 stands at 0.8% of risk-weighted assets.

Over time, improved capitalisation has sustained banks’ ability to service the economy. Since the global financial crisis, the share of equity capital in banks’ funding sources has increased. The share of bank loans as a key financing source for the European economy in 2024 was at roughly the same level as at the beginning of the century (Chart 9).

There are currently no signs of widespread losses or credit supply constraints arising from capital requirements.^[10] Recent ECB analysis confirms that well-capitalised banks provide more stable funding to the real economy. Also, banks’ profit efficiency increases with better capitalisation up to an estimated capital level of 18% – a point that remains above current average capital levels.^[11]

Chart 9

Bank equity and lending

(left-hand scale: percentage of GDP; right-hand scale: percentage of total assets)

Priorities for maintaining resilience

Over the next three-year cycle, we have two supervisory priorities focusing on the resilience of the euro area banking sector (Figure 1).

Figure 1

The supervisory priorities for the years 2026-28

Strengthening banks’ resilience to geopolitical risks and macro-financial uncertainties is our first priority. Currently, economic policy uncertainty is elevated. However, this is hardly reflected in market-based indicators of financial stress, creating the risk of an abrupt repricing of risk (Chart 10).

Banks thus need to adopt sound credit standards, maintain adequate capitalisation and manage climate and nature-related risks prudently. A reverse stress test will be conducted next year to identify bank-specific geopolitical scenarios that could severely affect the financial situation of individual banks.

Chart 10

Measures of uncertainty in the euro area

Our second priority is related to banks’ operational resilience and robust ICT capabilities. Banks need to have resilient operational risk management frameworks and remedy deficiencies in internal risk data systems. In addition, we will focus on banks’ digital and AI-related strategies.

To deliver on these priorities, we are adapting the ECB’s supervision to make it more efficient and effective while maintaining a clear focus on relevant risks.

These reforms have four elements.

First, the reform of the SREP, which I described here last year, is a core component. It is well on track, and its effects are already visible. This year, for example, SREP decisions have been issued sooner and are more focused.

Second, in our Next Level Supervision project, we are streamlining all supervisory activities, including on-site inspections, decision-making procedures and stress-testing. We are removing overlaps and increasing proportionality in reporting.

Third, a project on supervisory culture ensures that these reforms are implemented throughout the banking union in an integrated way.

Fourth, we are monitoring and evaluating the effectiveness of our supervision.

These initiatives are essential in retaining a strong and competitive banking sector.

Yes, the environment is challenging. Uncertainty is high. Digitalisation is progressing rapidly. For European banks, the best response is to retain their financial and operational resilience. This strengthens their long-term business models – and makes them more competitive.

Looking beyond supervision, in responding to global developments, policymakers should prioritise maintaining resilience and promoting the Single Market. Finalising the banking union, particularly introducing European deposit insurance, remains essential.

There is clearly room for “more Europe”. Many rules related to bank governance and insolvency legislation remain fragmented across Member States.^[12] Greater harmonisation would support integration and the efficiency of the banking sector alike. Harmonisation and simplification are two sides of the same coin.

At the same time, Europe should remain committed to global standards, just as we remain committed to closely cooperate with our international partners.

On our part, we will ensure an efficient, effective and risk-based supervisory framework. This helps sustain trust in European banks among investors and depositors. Any move to weaken standards would instead weaken the resilience and competitiveness of European banks.

Thank you very much for your attention. I look forward to your questions.