EBA stress test 2025: Germany's banks prove their resilience
German financial institutions have proven their crisis resilience in this year's EU-wide stress test. Despite a simulated economic slump of 7.5% and a severe crisis scenario, German banks proved to be robust. Although their Common Equity Tier 1 capital ratio fell more sharply on average than in the EU comparison, they ended up above the European average thanks to their solid initial capitalization. Stable assets and better earnings also contributed to their resilience.
The Europe-wide Stress Test 2025, which was carried out by the European Banking Authority (EBA) together with the European Central Bank (ECB), confirms the overall resilience of the banking sector in the eurozone. 96 banks from the eurozone and 13 other institutions outside the eurozone took part in the review. A total of 21 banks were included for Germany. The stress test was based on two scenarios: a realistically assessed baseline scenario and a hypothetical crisis scenario. The latter assumed a sharp economic downturn, persistently high inflation, rising interest rates and geopolitical tensions. A decline in gross domestic product of 7.5 % over three years was modeled for Germany and a decline of 6.2 % for the eurozone as a whole.
Compared to European banks, the decline in the CET1 ratio of German banks was higher on average - which was mainly due to the fact that they started the test with a stronger capital cushion. In addition to the strong starting base, improved net interest income and the continued stable quality of bank assets also contributed to the positive balance sheet.
The new Capital Requirements Regulation CRR III, which came into force at the beginning of 2025, was taken into account for the first time in this stress test. The banks had to calculate their capital ratios both with transitional regulations ("transitional") and according to the fully implemented regulations ("fully loaded"). While the transitional values are closer to the actual capital planning, the fully loaded values allow a view of longer-term, potentially risky developments without regulatory transition relief. Even though the results are robust overall, both the Bundesbank and BaFin emphasize that the situation on the markets remains fraught with uncertainty.
Despite the good results, the uncertainties in the market environment remain high. As an expert in risk management and regulatory reporting, CURENTIS AG supports financial institutions in efficiently implementing regulatory requirements and developing robust management and risk strategies. In this way, we work together to strengthen the resilience of your institution - even under tougher conditions.
To the author:
Artur Kehrein has been a Senior Consultant at CURENTIS AG since 2022. He has many years of experience in risk management and regulatory reporting. He also specializes in sustainable/green finance and regulatory reporting.
