EBA stress test 2025: EU banking sector remains resilient under severe scenario

Scope and scenario

The 2025 exercise involved 64 banks, 51 of which are from the euro area, together representing around 75% of the EU banking sector’s total assets.

The scenario combined a severe recession with escalating geopolitical tensions and rising protectionist trade policies worldwide. Despite this challenging environment, the results show that EU banks would remain resilient.

Headline results

Over a three-year horizon, the participating banks would bear combined losses of €547 billion, resulting in a capital depletion of 370 basis points – less than in the 2023 exercise, despite similar scenario severity. At the end of the scenario, the aggregate Common Equity Tier 1 (CET1) ratio remains above 12%.

This resilience reflects the improvements in banks’ profitability and capital ratios in recent years, which have cushioned the impact of the stress. Although banks show higher nominal losses due to greater risk sensitivity, they benefit from stronger loss-absorption capacity through income generation.

CRR III integration

A major innovation in the 2025 exercise was the integration of the Capital Requirements Regulation III (CRR III) into the starting points and projections. While the exercise is primarily a risk assessment tool rather than a regulatory compliance review, it provides useful market indications.

The transitional impact of CRR III on the aggregate CET1 ratio at year-end 2024 was negligible, with a 129 bps reduction on a fully loaded basis – applicable only from 2033. The eight-year phase-in period offers banks time to adjust policies and portfolios, and even under full application today, the CET1 ratio would remain above 11%, higher than in past exercises.

Areas for attention

The EBA report also highlights several points for further improvement:

• Stress testing capabilities: Some banks should enhance their internal organisation, statistical modelling, and risk management to better identify vulnerabilities, particularly in corporate portfolios.
• Net interest income (NII): The contribution of NII to loss absorption is expected to decline as net interest margins normalise from high levels. Persistently low interest rates have historically been more damaging to NII than sharp increases.
• Risk concentration: Credit risk remains the largest source of losses, and these have increased compared to 2023. Losses from market activities are also notably higher than in the previous exercise.

Counterparty credit risk (CCR) analysis

Separately, the ECB conducted an exploratory CCR stress test with 15 selected banks, examining adverse scenarios involving interlinkages with non-bank financial institutions (NBFIs). The analysis found significant stressed exposures to non-financial corporations and US-based NBFIs, with varying levels of collateralisation across banks.

Supervisory follow-up

As in previous years, stress test results will feed into banks’ SREP scores and supervisory capital requirements.

For more information

Sandrine ROUX
Head of Banking Regulation, Financial Markets and Sustainability
ABBL – The Luxembourg Bankers’ Association
sandrine.roux@abbl.lu