European Central Bank Banking Supervision published a keynote speech by Pedro Machado outlining a forward-looking, risk-based supervisory approach for 2026-28 and identifying two overarching priorities for the period: strengthening banks’ resilience to geopolitical risks and macro-financial uncertainty, and improving operational resilience and information and communications technology capabilities. The speech focused on the first priority, setting out two planned initiatives for 2026 covering credit underwriting and geopolitical stress testing. The 2026 thematic review on credit underwriting is intended to improve supervisory and industry understanding of new lending practices by enhancing data collection and making reporting more consistent across European banking supervision, with anonymised benchmarking results to be shared with banks. An analysis of banks’ internal credit underwriting management information packs found significant variation in granularity, with key risk indicators often insufficient to assess underlying loan quality or relative risk positioning, which the speech linked to a lack of standardised definitions of new lending and harmonised key risk indicators. On geopolitical risk, the 2026 thematic reverse stress test will assess banks’ capacity to withstand geopolitical shocks by reviewing internal capital and liquidity adequacy statements, funding planning, recovery plans and internal stress-testing frameworks. Each bank will be required to identify geopolitical events that could deplete its Common Equity Tier 1 (CET1) capital by at least 300 basis points over a three-year horizon, measured against its unstressed end-2025 CET1 ratio on a fully-loaded basis; the exercise will be embedded in the 2026 internal capital adequacy assessment process (ICAAP), supported by a dedicated questionnaire and bank-specific feedback from Joint Supervisory Teams, and it is not intended to affect Pillar 2 guidance.
European Central Bank - Banking Supervision 2026-02-25
European Central Bank Banking Supervision details 2026 credit underwriting thematic review and 300 basis point CET1 geopolitical reverse stress test
The European Central Bank Banking Supervision outlined a forward-looking, risk-based supervisory approach for 2026-28, prioritizing banks' resilience to geopolitical risks and macro-financial uncertainty, and enhancing operational resilience and ICT capabilities. Key initiatives include a 2026 thematic review on credit underwriting for data consistency and a reverse stress test to assess banks' capacity to withstand geopolitical shocks, requiring banks to identify events that could deplete CET1 capital by at least 300 basis points over three years.