Overview
- The ECB carried out a thematic reverse stress exercise covering 110 euro-area banks that asked each institution to design plausible geopolitical shocks calibrated to a 300 basis-point fall in CET1 capital.
- Supervisors found banks generally identified relevant vulnerabilities but relied on mitigation assumptions that were too optimistic, including expectations of selling loan portfolios or raising capital at favorable prices.
- Banks themselves singled out cyberattacks and disruption to services from external providers as the main non-financial risks that could trigger or worsen a crisis.
- The ECB said it will address the shortcomings with the affected banks through continued supervisory dialogue and may push for tougher recovery planning, clearer liquidity stress assumptions and stricter controls on outsourcing risks.
- The ECB used an entity-specific method rather than a single EU-wide scenario, which exposed planning gaps that standard forward stress tests can miss and could lead banks to tighten lending or services if supervisors require stronger buffers.