In a keynote speech, European Central Bank Banking Supervision outlined its supervisory priorities for 2026-28 and expanded on two 2026 initiatives aimed at improving banks’ resilience to geopolitical risks and macro-financial uncertainty: a thematic review of credit underwriting and a reverse stress test focused on geopolitical risk. The credit underwriting review is intended to deepen supervisors’ understanding of emerging lending practices by enhancing data collection and promoting more consistent reporting across European banking supervision, with anonymised benchmarking results shared back to banks. Supervisors’ analysis of a sample of banks’ internal credit underwriting information packs found wide variation in granularity and frequent gaps in indicators that capture loan quality and relative risk positioning, which the ECB linked to a lack of standardised definitions of new lending and harmonised key risk indicators. On geopolitical risk, the 2026 reverse stress test will ask each bank to identify relevant geopolitical events that could lead to a depletion of at least 300 basis points in its fully loaded Common Equity Tier 1 capital over a three-year horizon, measured against the bank’s unstressed end-2025 CET1 ratio, and will review capital and liquidity adequacy statements, funding planning, recovery plans and internal stress-testing frameworks. The exercise will be embedded in the 2026 internal capital adequacy assessment process, include a dedicated questionnaire, and be followed by Joint Supervisory Team feedback and some benchmarking, without affecting Pillar 2 guidance.
European Central Bank 2026-02-25
European Central Bank sets out a 2026 credit underwriting thematic review and a geopolitical reverse stress test with a 300 basis point CET1 depletion target
The European Central Bank Banking Supervision outlined its 2026-28 priorities, focusing on enhancing banks' resilience to geopolitical risks and macro-financial uncertainty. Key initiatives include a thematic review of credit underwriting to improve data collection and reporting consistency, and a reverse stress test to assess banks' vulnerability to geopolitical events impacting Common Equity Tier 1 capital. The stress test will be integrated into the 2026 internal capital adequacy assessment process, with feedback from Joint Supervisory Teams.