Kamil Liberadzki and Angel Monzon interview with Börsen Zeitung: The strong performance of banks in the stress test is reassuring

“The strong performance of banks in the stress test is reassuring”

The largest European banks have proven their resilience to geopolitical and economic turbulence in a stress test. However, in the interview, Kamil Liberadzki and Angel Monzon, who are responsible for stress testing at the European Banking Authority (EBA), also urge caution.

BZ: Mr Liberadzki and Mr Monzon, is this year’s stress test scenario the toughest that banks have had to face so far?

Kamil Liberadzki: This year’s scenario is similar in severity to that of 2023, meaning it is more severe than in previous years. However, the narrative differs from 2023. Back then, the focus was on rising inflation and rising interest rates, while this year, the focus is on geopolitical tensions and trade fragmentation, as well as on tariff increases.

BZ: What are the most remarkable findings from your point of view?

Angel Monzon: One of the main findings is that the capital loss in the adverse stress test scenario amounted to 370 basis points, resulting in a hard capital ratio of 12 % at the end of the test. These results confirm that the EU banking system would remain resilient even in the event of a hypothetical severe economic downturn. This also means that banks should have adequate capitalisation and be able to continue to grant loans and support the real economy.

BZ: What else did you notice?

Monzon: Another observation is that the banks started the stress test with better profitability and better capital resources than in previous years. During the test, the banks achieved high returns, which enabled them to absorb their losses partially and the capital loss was lower compared to the 2023 test. The strong performance of EU banks in the 2025 stress test is reassuring.

BZ: What are you going to do with the results? In any case, they are taken into account in the annual SREP process, in which individual capital add-on is determined.

Monzon: The results of the stress test enable the competent authorities to assess the ability of banks to comply with the applicable regulatory ratios under the unfavourable scenario. This also means that they will consider the results when determining potential Pillar 2 capital and leverage recommendations, i.e. P2G or P2G-LR. Observations on aspects such as reporting capacity and data quality during the stress test may also be taken into account in the context of the SREP process and may have an impact on the definition of the Pillar 2 requirement.

BZ: What happened to institutions that you found to have performed poorly?

Liberadzki: As you have correctly stated, the results flow into the SREP process, on the basis of which the supervisory authorities determine follow-up measures. This year, the focus may be on revenue generation and asset quality metrics, which we have identified as key drivers of poor performance.

BZ: Will some banks now have to be prepared to postpone or cancel plans for distribution of dividends?

Monzon: The results of the stress test have certain, but not necessarily direct impact on the distribution of dividends. The supervisory authorities usually discuss with the banks their capital plans and their ability to fulfil their capital requirements under various negative scenarios.

The ability of banks to pay dividends is of course linked to these considerations. One of the inputs for this discussion are the results of the stress test.

BZ: Supervisors have complained that banks have made overly optimistic assumptions in previous stress tests when calculating their respective capital depletion. How do you proceed when results appear to be embellished?

Liberadzki: There are several levels of measures to ensure that the results are not overstated. First, we use a special FAQ process during the exercise to ensure that the methodology is interpreted correctly by the banks. Secondly, we check that the starting points match the actual figures. Finally, the forecasts are reviewed using various tools and are discussed with the banks.

BZ: The world is experiencing increased geopolitical and macroeconomic turbulence, not least due to the erratic decisions of US President Donald Trump. Will you take this into account in future stress tests?

Monzon: The scenario has been developed taking into account the most significant risks. As you can see from this year’s scenario, the presentation could not have been more faithful. We will continue to pursue a similar approach in the future. Unfortunately, geopolitical uncertainties are likely to continue for some time, which is why the scenario takes into account both macroeconomic uncertainties and geopolitical developments. It is important to note that the work on the scenarios is led by the European Systemic Risk Board (ESRB) in consultation with the European Central Bank (ECB), the national competent authorities and EBA. When developing future scenarios, we will take into account the most important risks at that point to ensure that our stress test remains relevant.

BZ: What do you think is the most pressing issue for banks as they try to navigate this increasingly challenging environment?

Liberadzki: In highly uncertain times, scenario planning becomes an important tool. Banks need to monitor how their portfolios would respond to certain unfavourable scenarios, in particular with regard to credit risk. The stress test clearly shows that certain sectors of the economy are more affected by this year’s developments, including geopolitical tensions and trade fragmentation. Although banks have already improved their modelling capabilities, they need to do even more in the future.

BZ: What exactly?

Liberadzki: This year’s stress test also reflected the banks’ very good earnings due to higher interest rates. However, banks will have to take into account the sustainability of their earnings in the future, as falling interest rates could affect their ability to absorb their losses. Finally, while major losses from conduct risks appears to be decreasing, other operational risks such as cyberattacks could increase.

In particular, in the context of the latter, banks should look beyond the financial impact and ensure business continuity.

The interview was conducted by Tobias Fischer

Börsen Zeitung (Germany)