European Central Bank (ECB) Banking Supervision announced it will conduct a geopolitical risk reverse stress test on 110 directly supervised banks in 2026 to assess how well banks’ stress-testing frameworks capture geopolitical risk and how such shocks could affect their business models. The exercise requires each bank to design a scenario that would lead to a pre-defined outcome of at least a 300 basis point depletion in Common Equity Tier 1 (CET1) capital, complementing the 2025 European Banking Authority stress test which applied a common scenario. Banks will be expected to identify the geopolitical events most relevant to them, quantify impacts, and describe management actions to reduce those impacts, including governance and operational resilience considerations. In addition to solvency effects, reporting will cover potential impacts on liquidity and funding conditions. To limit burden, the reverse stress test will be run as part of the 2026 internal capital adequacy assessment process (ICAAP), largely using existing supervisory data templates, and is intended to meet the ECB’s obligations under Article 100 of the Capital Requirements Directive. The ECB clarified that results are not intended to affect Pillar 2 Guidance, but will feed into the Supervisory Review and Evaluation Process qualitatively, with identified weaknesses informing the assessment of banks’ geopolitical risk materiality, stress-testing capabilities, and risk data aggregation and reporting. The ECB plans to communicate the main aggregate conclusions in summer 2026.
European Central Bank - Banking Supervision 2025-12-12
European Central Bank Banking Supervision to run a 2026 geopolitical risk reverse stress test on 110 directly supervised banks
The European Central Bank Banking Supervision will conduct a geopolitical risk reverse stress test on 110 directly supervised banks in 2026, requiring scenarios leading to a minimum 300 basis point depletion in Common Equity Tier 1 capital. This exercise will assess banks' stress-testing frameworks and ability to manage geopolitical shocks, with results feeding into the Supervisory Review and Evaluation Process. The test will be integrated into the 2026 internal capital adequacy assessment process, using existing supervisory data templates.