The European Central Bank’s next stress test will ask lenders to come up with hypothetical situations in which
risks like trade disruptions or wars could hit their financial strength.
The exam next year will “assess which firm-specific geopoli
tical risk scenarios could severely impact their solvency,” Claudia B
uch, who leads the ECB’s Supervisory Board, told European lawmakers o
n Tuesday in Brussels.
Buch has pushed lenders to improve their ability to grasp an
d withstand the fallout from so-called geopolitical risks since taking over as the ECB’s top banking watchdog last year.
The focus appears prescient as US President Donald Trump’s tariff
announcements upend global trade and various regions of the world are gripped by armed conflict.
Claudia Buch, who heads the ECB’s Supervisory Board; photo credit: Alex Kraus/Bloomberg
The financial syst
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em “has so far remained resilient” following the announcement of US ta
riffs, Buch said. Still, the ECB is monitoring potential spillovers from
outside the banking sector and lenders may also need to boost provis
ions for losses as the implications of higher tariffs becomes clear, she added.
European banks are currently undergoing a financial health revi
ew run by the European Banking Authority. In between those biennial exams, the ECB holds a so-called thematic stress
test. Last year’s exercise simulated a hacker attack.
The ECB said the exam will be a so-called reverse stress test, where reg
ulators determine a specific outcome and banks then have to identify sufficiently severe scenarios that would lead them to it.
Photograph: The European Central Bank headquarters beyo
nd cargo trains and containers at a freight terminal in Frankfurt. Photo credit: Ben Kilb/Bloomberg