European banks prove resilient under stress scenario

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The results of the 2025 EU-wide stress test confirm that European banks remain resilient in a stress scenario with a deep economic recession. The stress test was conducted earlier this year by the European Banking Authority (EBA) and the European Central Bank (ECB).

Published: 01 August 2025

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A geopolitical scenario

The adverse scenario includes a sharp deterioration in the global macro-financial environment caused by rising geopolitical tensions, structural trade fragmentation and persistent supply shocks. These shocks lead to a prolonged contraction in global economic activity, sharp increases in energy and commodity prices, rising inflationary pressure and significant corrections in financial markets. As a result, the core capital ratio (CET1 ratio) of euro area banks falls by 4.0 percentage points on average to 12.0% by the end of 2027. The CET1 ratio is a key measure of a bank’s financial soundness. Strong profitability helps banks partially absorb their losses and results in a lower capital impact compared to the 2023 stress test, when the CET1 ratio after stress came to 10.4%. The stress test also confirms the resilience of Dutch banks. In the stress scenario, the average CET1 ratio for Dutch banks falls by 3.9 percentage points to 12.4%.

Biennial stress test

Every two years, the EBA and the ECB carry out a stress test exercise to assess the resilience of the largest European banks, identify potential risks, inform supervisory decisions and promote market discipline. A total of 64 of Europe's largest banks participated in the EBA-coordinated exercise, including three Dutch banks: ING Bank, Rabobank and ABN AMRO Bank. The ECB also carried out a stress test at 45 medium-sized banks in the euro area, including ASN Bank, RBS Holdings, BNG Bank and NWB Bank.

The stress tests serve as input for the annual Supervisory Review and Evaluation Process (SREP). More specifically, their quantitative impact is a starting point for supervisors to determine the level of Pillar 2 Guidance (P2G). The P2G is an indicator of the amount of capital banks should hold to absorb shocks.

Read the press releases of the EBA and the ECB.

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