The European Banking Authority (EBA) today released the results of its 2025 EU-wide stress test involving 64 banks from 17 EU and EEA countries and covering 75% of EU banking sector assets. The results confirm that European banks remain resilient even under a severe hypothetical economic downturn. The simulated scenario involves a sharp deterioration in the global macro-financial environment, driven by a resurgence in geopolitical tensions, entrenched trade fragmentation, including increase in tariffs, and persistent supply shocks. EU banks, despite bearing losses of EUR 547bn, maintain strong capital positions and their capacity to continue supporting the economy.
Key findings
- The capital depletion under the adverse stress test scenario amounts to 370 bps, resulting in a CET1 ratio at the end of the scenario of 12%[2]. The strong income generation during the exercise helps banks to partly offset their losses and results in a lower depletion compared to the 2023 exercise.
- Banks start the exercise with higher profitability and capital than in recent years. While banks are more risk-sensitive, showing higher nominal losses, they have better absorption capacity through income generation. Banks show more vulnerabilities in credit and market risk, which are the main contributors to the stress test losses.
- Specific adverse scenarios affect economic sectors differently. Banks have improved their ability to differentiate the impact of adverse scenarios across sectors, but there is still a need to further improve their modelling efforts.
- Strong performance of the EU banks in the 2025 EU-wide stress test is reassuring, nonetheless, maintaining adequate capital remains essential to ensure the safety of the EU banking system.
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