Geopolitical stress test reveals flaws in bank crisis planning

The 2026 thematic stress test required 110 directly supervised euro area institutions to design reverse scenarios achieving a target CET1 capital depletion of at least 300 basis points.

Unlike traditional solvency tests, this exercise forced banks to identify specific geopolitical triggers—such as military conflicts, energy supply disruptions, and cyberattacks—and model their transmission across financial, real economy, and security channels.

While most participating banks successfully translated economic shocks into risk drivers, supervisory evaluation exposed notable flaws in granularity and scenario sensitivity.

Impairment losses on credit portfolios and reduced net interest income emerged as primary drivers of capital erosion, particularly within trade-dependent and energy-intensive economic sectors.

Supervisors identified major inconsistencies in how banks modeled the solvency-liquidity nexus and evaluated mitigating management actions.

Around 59 percent of banks planned dividend suspensions and 40 percent relied on asset disposals.

However, these individual plans often fail to account for systemic market congestion when multiple institutions attempt identical actions simultaneously.

Additionally, 86 banks identified cyberattacks as a major non-financial risk driver, yet foreign currency liquidity risks remained under-modeled across several business models.