The European Banking Authority (EBA) announced on Monday that it will conduct stress tests to evaluate how European banks would cope with severe geopolitical tensions and trade wars. The simulation assumes a significant economic downturn driven by trade shocks, with results set to be published in early August.
The stress tests will involve 64 banks across the EU and Norway, representing three-quarters of the region’s banking assets. Of these, 51 banks are under the supervision of the European Central Bank (ECB), which will also run its own tests for banks not covered by the EBA.
The EBA’s hypothetical scenario envisions a cumulative 6.3% contraction in EU GDP over three years through 2027. Initial supply shocks are expected to cause sharp inflation increases, which would later stabilize as declining consumer confidence, employment, and spending moderate price growth.
Participating banks have received documents and templates, with final responses due in July. The EBA’s last stress test results were published in 2023, a decade after the assessments began to evaluate capital requirements and crisis resilience.
These tests remain a critical tool for supervisors to ensure the stability of the banking sector and its ability to support the economy during crises.