ECB to conduct geopolitical risk reverse stress test on supervised banks

The European Central Bank (ECB) has announced it will conduct a geopolitical risk reverse stress test on 110 directly supervised banks in the Single Supervisory Mechanism in 2026. In a reverse stress test, a pre-defined outcome is set, and each bank defines the scenario in which that outcome would materialise. This exercise will complement the 2025 EBA stress test, which applied a common scenario for all banks and resulted in varying differences in their capital depletion. The 2026 stress test will focus on how geopolitical risk could affect banks' business models, who should identify relevant geopolitical events and quantify their impact. Additionally, the banks will be asked to describe how they would act to reduce that impact, if necessary, with a view to ensuring that they have robust governance and operational resilience frameworks in place.

Specifically, banks will be expected to identify the most relevant geopolitical events that could lead to at least a 300-basis point depletion in Common Equity Tier 1 capital. Banks will also be asked to provide information about how it may affect their liquidity and funding conditions. To keep costs efficient, the exercise will be integrated into the 2026 internal capital adequacy assessment process, so banks will mainly be able to use existing data collection templates. The geopolitical risk reverse stress test is not intended to have any implications for Pillar 2 guidance. The results will help to inform and complement the supervisory review and evaluation process (SREP) qualitatively. Weaknesses identified by the stress test will feed into the SREP assessment, focusing on banks' ability to incorporate geopolitical risks into their risk materiality assessments, stress-testing framework, risk data aggregation and reporting capabilities. Aggregate results will be published in summer 2026.

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