EU Banks Prove Resilience in Stress Test Scenario, Maintain Robust Capital Buffers Amid Hypothetical Severe Crisis

European Union banks have passed a stress test, with combined losses of €547 billion in a simulated severe crisis. Despite this, the banks maintained robust capital buffers. The Common Equity Tier 1 ratio, a key measure of financial strength, dropped from 15.8% to 12.1% overall. Deutsche Bank and Commerzbank fared poorly, while some regional banks, such as BayernLB and NordLB, performed better. The crisis scenario simulated a 6.3% decline in EU economic output, a 50% plunge in stock prices, and a 30% drop in commercial real estate value.

The European Banking Authority (EBA) has published the results of the 2025 EU-wide stress testing exercise, revealing that European banks collectively absorbed €547 billion in losses during a simulated severe crisis. Despite these substantial losses, the banks maintained robust capital buffers, with the Common Equity Tier 1 (CET1) ratio dropping from 15.8% to 12.1% overall [1].

The stress test scenario, set by the European Central Bank (ECB) and European Systemic Risk Board (ESRB), simulated a 6.3% decline in EU economic output, a 50% plunge in stock prices, and a 30% drop in commercial real estate value. This challenging scenario tested the resilience of banks' capital positions and their ability to withstand severe economic shocks.

Among the notable performances, Deutsche Bank and Commerzbank faced significant challenges, while some regional banks like BayernLB and NordLB demonstrated better resilience. ING, for instance, maintained a CET1 ratio of 10.63% under the adverse scenario, reflecting its strong capital position [2].

Société Générale, a top-tier European bank, also performed well, maintaining its commitment to sustainable value creation and environmental transition. The bank's robust capital position and strong ESG capabilities have been integral to its success in navigating the stress test [1].

The results of the stress test are crucial for the Supervisory Review and Evaluation Process (SREP), which helps competent authorities assess banks' ability to meet prudential requirements under stressed conditions. While the test did not have a pass/fail threshold, the outcomes provide valuable insights into the banks' preparedness for future economic downturns.

In conclusion, the 2025 EU-wide stress test underscores the resilience of European banks' capital buffers despite substantial losses. The results highlight the importance of robust capital management and stress testing in ensuring financial stability.

References:
[1] https://uk.finance.yahoo.com/news/societe-generale-european-banking-authority-160500323.html
[2] https://www.morningstar.com/news/globe-newswire/1001121023/eba-stress-test-confirms-ings-resilient-capital-position