The European Central Bank's (ECB) Single Supervisory Mechanism is planning a thematic stress test in 2026, in which each bank will build its own geopolitical scenario tailored to its specific vulnerabilities (a "reverse stress test" or reverse stress test - editor's note). The aim is to check to what extent banks take geopolitical risk into account in their capital planning, stress tests, risk management frameworks and corporate governance, according to a blog post by ECB Supervisory Board member Sharon Donnery and Director General "Supervisory Policy" Mario Qualiariello, dedicated to the strategic directions of European banking supervision in conditions of increasing uncertainty, BTA reported.
According to the ECB's supervisory authority, geopolitical uncertainty continues to grow due to protectionism, geo-economic fragmentation and increasing global tensions. As an example, rising tariffs related to US trade policies are cited, which could disrupt the real economy and financial markets. The authors of the publication add that with high public spending and fiscal constraints, governments may have less capacity to mitigate future economic shocks.
The European banking sector is “broadly resilient“, but “we need to remain vigilant“, Donnery and Qualiariello also note.
The ECB's supervisory priorities for the period 2026 – 2028 are aimed at strengthening the resilience of banks to geopolitical risks and macro-financial uncertainty, as well as increasing their operational resilience and ICT capacities, including with regard to digital strategies and the management of risks related to artificial intelligence, the authors of the publication add.
Another emphasis of the 2026 plan – 2028 is the implementation of a thematic review of lending standards with a focus on new lending to assess how banks plan to limit potential credit losses and preserve asset quality in a deteriorating environment.
Supervision will monitor the adaptation to the new requirements under the Capital Requirements Regulation (CRR), including the adequate application of the new standardized approaches for credit and operational risk in the calculation of required capital.
On climate and resilience, ECB supervision recognizes that disasters are becoming more frequent and transition risks are increasing, with supervision gradually moving to a “more business-as-usual“ mode and shifting the focus from corrective measures to supporting banks in transition planning.
In the upcoming three-year period, assessments of ICT risk management will continue, with particular attention to cybersecurity and third-party risk management; The ECB expects the requirements of the Digital Operational Resilience Act (DORA) to be implemented quickly in early 2025. The authors state that ECB supervision will broaden its focus on generative artificial intelligence to assess its impact on banks’ risk profiles and governance frameworks and shape the future supervisory approach. In 2026, the ECB will continue reforms for more effective and risk-oriented supervision, including streamlining processes and procedures beyond the annual Supervisory Review and Evaluation Process (SREP), with the aim of greater capacity to respond to changes and a lower administrative burden for banks. The expected result is a greater capacity to respond to rapid changes in the external environment, as well as a reduction in the administrative burden for banks, without affecting the resilience and stability of the European banking system, the publication by Donnery and Qualiariello also states.