European Central Bank Banking Supervision has concluded its 2026 thematic stress test of 110 directly supervised significant institutions, finding that most banks meaningfully translated geopolitical scenarios into impacts on income, solvency and liquidity. The reverse stress test required each bank to design a scenario that would cause a minimum 300-basis-point depletion in its Common Equity Tier 1 ratio and assess the related liquidity and non-financial risks. The exercise was qualitative and is not comparable with the biennial EU-wide solvency stress tests. Weaknesses included insufficient scenario granularity and sensitivity, inconsistencies between scenario narratives and risk impacts, optimistic balance sheet growth assumptions and unrealistic mitigating actions during a systemic crisis. Many banks also failed to capture solvency-liquidity interactions adequately. Aggregate liquidity coverage ratios were generally projected to remain above the 100% minimum, although some foreign-currency ratios fell below that level. Cyberattacks were the most frequently identified non-financial risk. The ECB will address bank-specific vulnerabilities and modelling deficiencies through supervisory dialogue. Qualitative deficiencies may be reflected in the governance component of the Supervisory Review and Evaluation Process and could affect Pillar 2 requirements, but the exercise will not change Pillar 2 guidance or leverage ratio Pillar 2 guidance.
European Central Bank - Banking Supervision2026-07-31
European Central Bank Banking Supervision identifies stress-testing gaps in 110 banks' geopolitical risk simulations
European Central Bank Banking Supervision found that most of the 110 participating banks could model geopolitical shocks meaningfully, but identified gaps in scenario sensitivity, solvency-liquidity interactions and the realism of mitigating actions. Bank-specific deficiencies may affect Pillar 2 requirements through the supervisory review, while Pillar 2 guidance will remain unchanged.