European Banks Show Resilience in EU-Wide Stress Test

The European Banking Authority (EBA) conducted a stress test on 64 banks across the European Union, including major banks such as AIB, Bank of Ireland, Deutsche Bank, and Commerzbank, to assess their resilience to a severe economic downturn driven by geopolitical tensions and trade disruptions. The test scenario, covering 2025 to 2027, involves a 6.3% contraction in EU economic output, a 50% plunge in stock prices, a nearly 30% loss in commercial real estate values, and higher unemployment and inflation rates. Despite combined simulated losses of €547 billion and a drop in the Common Equity Tier 1 (CET1) ratio from 15.8% to 12.1%, none of the banks breached their core capital requirements, with only one breaching its leverage requirement. The results reflect strengthened profitability and stable asset quality among banks, highlighting the resilience built up in recent years since the 2008 financial crisis. The EBA emphasized that the stress test is not a pass/fail exercise but informs supervisory reviews and capital planning, urging banks to maintain adequate capital buffers to continue withstanding potential shocks. Overall, the findings indicate that the EU banking sector is well-prepared to endure a severe but plausible macroeconomic crisis while maintaining financial stability.