EBA stress test 2025: New challenges for European banks
The EBA stress test 2025 is in full swing. The consideration of the new Capital Requirement Regulation (CRR III), a combination of a "bottom-up" approach with "top-down" elements as well as an even harsher adverse scenario compared to 2024, which assumes a contraction of 6.3% due to increasing geopolitical tensions, poses new challenges for the selected financial institutions this year.
A total of 64 banks, representing approximately 75% of total banking assets in the EU, were identified by the EBA for the test. These banks were selected to ensure broad coverage of the European banking sector and to be able to apply the results to a variety of different business models and risk profiles. The results of the stress test serve as a basis for the supervisory review and assessment process and are intended to help financial institutions improve their risk management.
Since January 1, 2025, financial institutions have had to take into account the new requirements of CRR III. Changes concern the calculation of risk-weighted assets on the one hand and the methodology for calculating capital requirements on the other. Although market risks will continue to be assessed in accordance with the CRR II rules, the so-called output floor will be introduced in the stress test, which means that banks will also have to calculate their internal models in accordance with the standardized approach to credit risk in order to ensure the required minimum capital requirements.
The EBA Stress Test 2025 aims to assess the resilience of European banks to hypothetical economic shocks. The methodology of the stress test includes both a baseline scenario and an adverse scenario that simulates an intensification of geopolitical tensions and their impact on the economy. The test is conducted using a bottom-up approach, with the banks using their own data and models to calculate the impact of the scenarios on their balance sheets. In addition, some "top-down" elements are integrated to ensure the consistency and comparability of the results
The EBA Stress Test 2025 officially started in January 2025 with the publication of the macroeconomic scenarios. Banks must submit their initial results by the end of April 2025, followed by a second submission in early June 2025. The final results will be submitted to the EBA in early July 2025 and publication of the results is planned for early August 2025.
CURENTIS AG has already supported several financial institutions in such a stress test and, as an expert in risk management, will assist you in modeling the two scenarios and in carrying out the stress test in general. Following the stress test, we work with you to evaluate and implement the necessary adjustment measures. Get in touch with us!
About 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.
