The EU-wide stress test is conducted every two years, with the next exercise expected in 2027. For financial institutions in or near the EBA sample, preparation should begin well before the formal launch. The 2025 results highlighted several areas where banks need to strengthen their capabilities — and supervisors have signalled clearly that they expect improvement.
This guide identifies the key preparation areas based on lessons from the 2025 exercise, regulatory expectations, and the direction of travel for the EBA stress test framework.
Pillar 1: Regulatory Readiness — CRR3 and Beyond
The 2025 exercise was the first conducted under CRR3/CRD VI. While the transitional impact on aggregate capital ratios was modest (approximately 3 basis points), the operational burden was substantial. Banks had to produce dual reporting under both CRR2 and CRR3, calculate both transitional and fully loaded capital ratios, and apply the output floor to standardised approach portfolios — all while the regulatory framework was still settling.
For the 2027 exercise, CRR3 transitional arrangements will have advanced further towards full implementation. Banks should ensure their risk-weighted asset calculations are robust under both transitional and fully loaded assumptions. Those with large internal-model portfolios — particularly in real estate lending — should anticipate increasing output floor impacts and begin exploring capital optimisation strategies, including improvements to standardised approach data and collateral management.
There is also the question of whether the Fundamental Review of the Trading Book (FRTB) market risk rules, deferred from the 2025 exercise, will be incorporated into the 2027 methodology. Banks should monitor EBA communications closely and prepare for the possibility that FRTB-based market risk calculations will be required.
One practical lesson from the 2025 cycle: the stress test timeline coincided with the first COREP reporting under CRR3 rules, creating severe resource bottlenecks at many institutions. For 2027, the CRR3 transitional arrangements will have progressed further, but new complexities may arise from the phasing out of early transitional provisions. Banks that build a unified data and calculation infrastructure serving both quarterly regulatory reporting and stress test submissions will be better positioned to manage these concurrent demands efficiently.
Looking Ahead: Climate Risk in the 2027 Stress Test
The EBA has signalled that climate-related risks will begin to be integrated into the EU-wide stress testing framework from 2027 onwards. The 2024 “Fit-for-55” climate risk scenario analysis — conducted jointly by the EBA, EIOPA, ESMA, and the ECB — served as a precursor, testing institutions’ exposure to transition risks under an accelerated decarbonisation pathway.
While the precise format of climate integration in the 2027 stress test is not yet confirmed, banks should expect at minimum to assess the impact of climate-related transition risks on their credit portfolios — potentially through sector-specific overlays to the macroeconomic scenario. Institutions with significant exposure to carbon-intensive industries, fossil fuel lending, or climate-sensitive real estate portfolios should begin developing the modelling capability to project climate-conditioned credit losses.
At Generation Impact Global, our platform supports financial institutions in managing the intersection of ESG data, regulatory reporting, and risk analytics — including the climate risk dimensions that are increasingly central to supervisory stress testing.
Pillar 2: Data Infrastructure and BCBS 239 Compliance
The ECB sent an unmistakable signal in 2025: stress test data must meet the same BCBS 239 standards that apply to quarterly regulatory reporting. For the first time, ECB inspectors conducted on-site visits during the quality assurance process, specifically targeting banks suspected of insufficient data governance. Banks judged to have weak processes faced findings that could impact their Pillar 2 Requirements.
Supervisory expectation: The ECB’s latest guide on risk data aggregation and risk reporting explicitly states that BCBS 239 principles must apply to stress test data. This means documented data lineage, automated quality controls, reconciliation with source systems, and full audit trails — not ad-hoc spreadsheet exercises assembled under time pressure.
For many institutions, this represents a significant uplift. Historically, stress test data gathering has operated outside the capabilities of quarterly reporting frameworks, relying on manual processes and key individuals. Building an industrialised, governed data pipeline for stress test submissions should be a strategic priority — not a last-minute effort in the months before the exercise launches.
Pillar 3: Modelling Capability — Sectoral and Market Risk
The 2025 results revealed that banks have made progress in differentiating sector-level credit risk impacts, but significant room for improvement remains. The EBA reported that only around 15 banks per sector used statistical models for probability of default projections across more than half of their exposures. For loss given default, the figure was even lower at approximately 12 banks per sector. Many institutions still rely on top-down macroeconomic adjustments rather than sector-specific models.
Develop sector-specific PD and LGD models for at least the major NACE sectors in your portfolio. The sectoral GVA data from the ESRB scenario provides the calibration framework. Minimum country-sector coverage requirements have risen from 70% to 80%.
Ensure your models can differentiate between sector-country combinations — the dispersion in GVA impacts is substantial (e.g., manufacturing in Sweden vs Ireland).
Ensure full revaluation capability for all fair-value positions against prescribed market risk parameters. Credit spread shocks — the dominant driver of market risk losses in 2025 — require accurate position-level spread sensitivity data.
Prepare for the potential inclusion of FRTB-based calculations in the 2027 methodology. Banks using internal models should begin testing alternative standardised approach outputs.
The centralisation of NII projections in 2025 was the most significant methodology change in years. Banks no longer submit their own interest income forecasts; instead, the ECB provides the projections based on granular balance sheet data supplied by the banks. For the 2027 exercise, this centralised approach is expected to continue and potentially expand. Ensuring that your institution can provide complete, accurate, instrument-level data for the NII calculation is essential.
Several specific data challenges emerged in 2025. Banks that relied on aggregated maturity buckets rather than instrument-level repricing data found that the centralised methodology produced unexpected NII outcomes. Institutions with complex hedging strategies faced difficulties ensuring that hedge accounting positions were correctly excluded from the NII scope. And banks with large promotional loan portfolios needed to separate these from standard lending to avoid distorted funding cost calculations.
Operational risk modelling also warrants attention. While the aggregate impact remained stable at 61 basis points, the composition shifted — with declining conduct risk losses being replaced by rising losses from other operational categories, including cyber and process failure risks. Banks should review whether their internal operational risk models capture these evolving risk categories, particularly given the scenario’s emphasis on cyberattack frequency amid geopolitical tensions.
Pillar 4: Process Governance and On-Site Readiness
The introduction of ECB on-site inspections during the 2025 stress test process marked a significant escalation in supervisory expectations. Selected banks received only one week’s notice before inspectors arrived to examine their stress test workflows, data governance, model documentation, and sign-off procedures. The findings from these visits can directly impact P2R — the binding component of Pillar 2 capital requirements.
This means the stress test is no longer purely a quantitative exercise. Process quality, governance, and documentation are now supervisory deliverables in their own right. Banks should ensure that their end-to-end stress test workflow is industrialised, documented, and subject to formal governance and change controls — from data extraction through model execution, template population, senior management review, and final submission.
Key process elements that on-site inspectors are likely to examine include: the chain of responsibility for each component of the submission; version control and change management for models and data; documented procedures for manual adjustments and overrides (including who approved them and why); reconciliation procedures between stress test data and other regulatory reports; and evidence of senior management challenge and sign-off at each stage of the process.
Banks that historically relied on ad-hoc, person-dependent processes to assemble their stress test submissions face the greatest risk. The ECB’s message is clear: the stress test process itself is now a measure of institutional capability, and weaknesses in process governance will have capital consequences.
Recommended Preparation Timeline
Based on the 2025 cycle, the following timeline provides a realistic preparation framework for the expected 2027 exercise.
Assess Your Readiness Now
To benchmark your institution’s current preparedness, take our free EU-Wide Stress Test Readiness Assessment — an interactive self-assessment covering CRR3 integration, data quality, sectoral modelling, NII readiness, market risk capability, process governance, resource planning, and dry-run testing. The tool runs entirely client-side with no data transmitted.
For the full scenario data from the 2025 exercise, use our interactive Scenario Explorer and Sectoral GVA Impact Analyser.
Take the Readiness AssessmentFrequently Asked Questions
When is the next EU-wide stress test expected?
The EBA conducts the exercise every two years. Following the 2025 exercise, the next EU-wide stress test is expected in 2027, with the methodology likely published in late 2026 and the exercise launched in early 2027. The EBA has also indicated that climate-related risks may be embedded into the stress testing framework from 2027 onwards.
What is BCBS 239 and why does it matter for stress tests?
BCBS 239 refers to the Basel Committee’s Principles for Effective Risk Data Aggregation and Risk Reporting, published in 2013. The ECB now expects these principles to apply to all regulatory reporting, including stress tests. This means banks must demonstrate documented data lineage, automated quality controls, and full audit trails for stress test submissions — the same standards applied to quarterly COREP/FINREP reporting.
Will the next stress test include climate risk?
The EBA has signalled its intention to progressively embed climate-related risks into the stress testing framework. The 2024 Fit-for-55 climate risk scenario analysis — conducted jointly by the EBA, EIOPA, ESMA, and ECB — served as a precursor. The EBA FAQ states that climate risk integration will begin from the 2027 exercise onwards, in line with its founding regulation mandate.
How important are dry runs for stress test preparation?
Comprehensive dry runs are considered essential by industry advisers and regulators. A full dry run should include data extraction, CRR3 dual reporting, model execution across all risk types, NII data preparation, template population, and governance sign-off. The dry run allows banks to identify gaps, test system readiness, and assess whether results are intuitive — all before the real exercise begins.
What happens if a bank performs poorly in the stress test?
There is no pass-or-fail threshold, but poor performance has real consequences. Banks with steep capital depletion face higher Pillar 2 Guidance (P2G), which constrains the capital available for distributions. Qualitative findings — such as weak data governance or process deficiencies — can lead to higher Pillar 2 Requirements (P2R), which are legally binding. In severe cases, banks may face targeted supervisory initiatives or on-site inspections focused on remediation.
