The European Central Bank announced on Tuesday that a series of bank stress tests focused on geopolitical risk will be conducted in 2026, intensifying an exercise conducted this year.
Banks need to strengthen their ability to withstand immediate economic and financial threats and severe geopolitical shocks, Claudia Buch, chair of the ECB's banking supervision arm, said during a hearing at the European Parliament.
While geopolitical risk is not new, it affects all areas of traditional risk and requires the attention of bank executives and boards of directors, Ms. Buch insisted.
In recent years, the global economy has suffered the repercussions of multiple geopolitical crises, such as Russia's invasion of Ukraine and tensions with China.
In the thematic exercise, the ECB will ask banks to assess "specific geopolitical scenarios" that could ‘seriously impact their solvency, Ms. Buch said, without giving further details.
This will continue the work begun in this year's stress test conducted with the European Banking Authority (EBA) to assess the ability of major European banks to cope with a scenario of heightened tensions.
The results of this exercise, which covers nearly 110 banks representing around 75% of EU banking assets, are expected in early August.
The ECB regularly conducts stress tests to assess the resilience of Eurozone banks to economic and financial shocks, cyberattacks, and climate events, looking at the potential effects on their loan portfolios in particular.
These exercises aim to ensure that banks have sufficient capital to absorb losses in the event of a crises, thereby contributing to the resilience of the European banking system.
