European Central Bank Banking Supervision presented its Annual Report on supervisory activities for 2025 to the European Parliament and set out a shift toward more risk-based and efficient supervision amid heightened geopolitical uncertainty. The priorities centre on strengthening banks’ resilience to geopolitical and macroeconomic shocks and improving operational resilience, alongside reforms to streamline routine supervisory work. System-wide indicators for significant institutions remain solid, including an aggregate Common Equity Tier 1 ratio of around 16% and a non-performing loan ratio of around 2%, with pockets of vulnerability in commercial real estate and lending to small and medium-sized enterprises. The ECB reported no significant sector-wide difficulties in complying with the revised Capital Requirements Regulation (CRR III), and EU-wide stress test data showed an average impact in 2025 close to zero. Supervisory work this year will ask banks to identify geopolitical risk events that could deplete CET1 capital by at least 300 basis points and to set out preventive measures, while underwriting standards will be reviewed more closely given intensifying competition and incomplete market-wide data. Operational resilience priorities include IT and digitalisation investment, risk data aggregation, cyber risk and outsourcing of critical services. To streamline supervision, the ECB is working with the European Banking Authority to reduce stress test data templates and has cut additional supervisory reporting by about 20%. Processes for capital decisions, internal model approvals, fit and proper assessments and onsite inspections are being further standardised, with a risk-based approach covering about 90% of authorisation and qualifying holding decisions, and a more proportionate approach is being developed for small and non-complex institutions (under EUR 5 billion in total assets).
European Central Bank - Banking Supervision 2026-03-18
European Central Bank Banking Supervision strengthens risk-based supervision with a 300 basis point geopolitical stress test exercise and streamlined reporting
The European Central Bank Banking Supervision's 2025 Annual Report emphasizes risk-based, efficient supervision amid geopolitical uncertainty, focusing on banks' resilience to shocks. Key indicators for significant institutions remain solid, with a Common Equity Tier 1 ratio of around 16% and a non-performing loan ratio of around 2%. The ECB is streamlining supervision by reducing stress test data templates and supervisory reporting, and standardizing processes for capital decisions and assessments.