Headlines
ECB to quiz 110 banks on geopolitical risk impact
Published by Global Banking and Finance Review
Posted on December 12, 2025
Last updated: January 7, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on December 12, 2025
Last updated: January 7, 2026
FRANKFURT, Dec 12 (Reuters) - The European Central Bank will ask 110 of the euro zone's biggest banks to check how major geopolitical shocks would affect their business and what action would be needed to minimise the impact, the ECB said on Friday.
Conducting a so-called reverse stress test in the new year, the ECB will ask banks to describe what sort of political shock would reduce their Common Equity Tier 1 capital by 300 basis points and its effect on liquidity and funding conditions.
Managing geopolitical risk is among the ECB's top priorities for the coming years and it is looking to identify bank-specific vulnerabilities and challenge lenders' assumptions about risk exposure.
"The exercise will assess the extent to which banks’ stress-testing capabilities take geopolitical risks into account," the ECB said in a statement.
"In this regard, the exercise will aim to foster banks’ own risk-management capabilities, particularly in reverse stress testing, and their ability to design relevant and prudent capital and recovery plans."
Results of the test will be announced in the summer of 2026.
While the outcome should not affect capital requirements, any weakness revealed will feed into the ECB's Supervisory Review and Evaluation Process, which is used to tell banks how much capital they need to hold in addition to the regulatory minimum.
(Reporting by Balazs KoranyiEditing by David Goodman)
The European Central Bank (ECB) is the central bank for the eurozone, responsible for monetary policy and maintaining price stability within the euro area.
Common Equity Tier 1 (CET1) capital is the highest quality capital that banks must hold, consisting primarily of common stock and retained earnings.
A stress test is a simulation used by banks to determine their ability to withstand economic shocks and assess their financial stability under adverse conditions.
Liquidity conditions refer to the availability of liquid assets to a bank, which allows it to meet short-term obligations and manage cash flow effectively.
Funding in banking refers to the sources of capital that banks use to finance their operations and lend to customers, including deposits and loans.
Explore more articles in the Headlines category
