1 August 2025
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,[1] 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.
Banks start the exercise with higher profitability and capital than in recent years
- In 2024, EU banks maintained near-historic high profitability levels, with a return on equity of 10.5%. High net income provides a significant cushion for absorbing losses in the adverse scenario.
- Capital levels remained strong in 2024, with the CET1 capital ratio rising to 16%.
- Asset quality has stayed good and stable. The non-performing loans ratio stood at 1.9% with some increase in stage 2 loans.
The adverse scenario combines a severe recession with escalating geopolitical tensions and a rise in protectionist trade policies worldwide
- The adverse scenario combines a sharp loss of real GDP for the EU, reaching -6.3% from the starting point in 2024 to the end of the stress horizon in 2027, while the EU unemployment rate increases by 5.8 percentage points in the same period.
- For the EU, the scenario is more severe than the global financial crisis (GFC) and also substantially more severe than the recent macroeconomic developments.
High earnings help offset losses
- Under the adverse scenario, net earnings increase the capital ratio by 509 bps at the end of 2027, substantially more than in the last exercise (+ 365 bps). This comes from a better income generation capacity, both through larger Net Interest Income (NII) and Net Fee and Commission Income (NFCI) contributions. Administrative expenses offset a significant fraction of NII and NFCI.
- The negative impact on the CET1 ratio from credit losses (437 bps) is larger than in the previous stress test. Market risk losses impact on CET1 ratio amount to 108 bps and operational risk losses to 61 bps.
- Banks end the exercise with a projected CET1 ratio above 12% as of end-2027 under the adverse scenario, showing an overall 370 bps depletion.
Credit losses concentrate on specific portfolios
- Banks start the stress test with good asset quality, albeit in the last two years stage 2 exposures ticked up and stage 3 coverage ratios decreased.
- Credit risk losses at aggregate level stand at EUR 394bn, up from EUR 347 bn in the 2023 stress test.
- Losses for non-financial corporations' exposures account for around half of total credit losses. Losses varying by portfolio, with consumer loans, SMEs and commercial real estate leading the projected loss rates.
Adverse scenario narrative uncovers vulnerabilities in sectoral exposures
- Real estate activities represent the largest share of corporate exposures (19.5%) with 15.5% of total non-financial corporation’s losses.
- Vulnerabilities manifest over the scenario – lower asset quality at the beginning associated with higher impact.
- Exposures to trade-intensive sectors and relying more on global value chains are more affected.
- Banks using more often sectoral models have more risk sensitive projections, but further model development efforts are needed.
Robust net interest income in the adverse scenario
- Net interest income (NII) maximum decline at 19% due to a faster repricing of liabilities compared to assets.
- NII recovers as banks reprice their assets, but the inverted yield curve limits full NII recovery via higher interest earnings.
- Retail-focused banks show higher NII resilience due to large deposit bases that limit the adverse scenario impact on interest expenses.
- Rate sensitive depositor behavior and limited ability to pass-on rate increases to lending rates could pose downside risks.
Revenues from market making activity help reducing market risk losses
- Immediate market risk losses in the 1st year of the adverse scenario amount to EUR 183bn (-203 bps), 16% higher than in the 2023 exercise (EUR 157 bn).
- However, banks’ income generation from market-making activities, enables them to offset up to 50% of total losses, reducing the 3-year market risk losses to EUR 98bn (-108 bps).
- Credit spreads are the main driver of market risk losses (45%), especially for banks with high market risk exposure (CA-adv, nearly 60%). Losses evenly distributed for interest rates, equity prices and funds.
- Losses from sovereign bond holdings in the market risk portfolio amount to EUR 55 bn (61 bps), 64% of which affecting banks through capital (FVOCI).
Shift from large conduct risk losses to other operational risk losses
- Total cumulative operational losses under the adverse scenario are EUR 54.8 bn, with a negative capital impact of 61 bps.
- Banks expect losses coming from material conduct issues to decrease in the near future.
Summary of key results[3]
Transparency and input to the Supervisory Review and Evaluation Process
The EBA has published detailed, bank-level results from the stress test, including comprehensive data on both the starting point and the projected outcomes under the baseline and adverse scenarios.
While the EU-wide stress test does not apply a predefined pass/fail threshold, it serves as a critical input for the Pillar 2 supervisory assessment. The results will support Competent Authorities in evaluating banks’ ability to meet prudential requirements under stress and provide a robust basis for discussions between supervisors and individual institutions. These discussions cover capital adequacy and distribution plans as part of the regular Supervisory Review and Evaluation Process (SREP).
Notes to the editors
Detailed information on bank-level results, including interactive tools, can be found on in the 2025 EU-wide stress test website.
The 2025 EU-wide stress test involves 64 banks from 17 EU and EEA countries, covering 75% of the EU banking sector assets. This stress test allows supervisors to assess the resilience of EU banks over a three-year horizon under both a baseline and an adverse scenario. The full sample of banks can be found in Annex 1 of the EBA methodology.
The EU-wide stress test is initiated and coordinated by the EBA and undertaken in cooperation with the EU Competent Authorities, including the European Central Bank (ECB) for the Banking Union, and the European Systemic Risk Board (ESRB).
The EBA develops a common methodology and is responsible for the final dissemination of the outcome of the exercise. The adverse scenario is designed jointly by the ESRB and the ECB, and the baseline scenario is provided by the national central banks. Competent Authorities, including the ECB Banking Supervision for the euro area banks, are responsible for ensuring that banks correctly apply the common methodology. In particular, they are responsible for assessing the reliability and robustness of banks’ assumptions, data, estimates and results and the resulting supervisory actions.
The EU-wide stress test is based on the implementation by the banks of the EBA methodology and the two scenarios, under the close scrutiny of their supervisors (“constrained bottom-up” exercise). Some parts of the stress test rely on top-down projections or have been centralised. The 2025 methodology benefits from enhancements, including the centralisation of net interest income (NII) projections with a revised NII scope and a more risk-sensitive market risk approach with enhanced proportionality. The changes are part of the medium-term plan of revising the stress test framework.
The EU banking package regulation (CRR3/CRD VI), which applies from 1 January 2025, is reflected in the 2025 EU-wide stress test methodology and templates, which should, however, continue to be understood as a risk exercise, and not as an exercise that assesses the impact of regulatory changes. The Capital Requirements Regulation (CRR3) is introduced step by step using transitional arrangements until full implementation in 2033. The Report focuses on applicable CET1 capital ratios, i.e. “transitional ratios” taking into account all the applicable transitional arrangements specified in the CRR3 over the three-year scenario horizon. For completeness, the outcome of the exercise under the assumption of full implementation, i.e. “fully loaded ratios”, is also reported (see section 2.4 of the Report for further details).
Detailed information about the baseline and adverse scenarios can be found in the note produced by the ESRB.
The EBA’s 2025 stress test methodology can be found on the EBA website.
[1] These are total credit, market and operational risk losses.
[2] This refers to the applicable capital ratios and stress test impacts computed considering all applicable CRR3 transitional arrangements (i.e. “transitional capital ratios“). See section 2.4 of the Report for more details about the implementation of CRR3.
[3]Bank projections are based on the regulatory regime applicable as of January 1, 2025, when CRR3 applies. The ratios are provided on transitional basis. The progressive phase-in of the regulation through transitional arrangements facilitates the adjustment of banks towards the new framework, which will apply in full as of 2033.
Documents
Digital publication of the 2025 EU-wide stress test results
2025 EU-wide stress test - Results
2025 EU-wide stress test - FAQs
2025 EU-wide stress test - Presentation
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Press contacts
Franca Rosa Congiu, press@eba.europa.eu +33 1 86 52 7052