The European Central Bank will run a thematic stress test in 2026 that asks euro-area lenders to pinpoint the firm-specific geopolitical scenarios—ranging from higher tariffs and sanctions to cyber attacks—that could most severely hit their solvency, Supervisory Board Chair Claudia Buch told the European Parliament. Rather than prescribing a single macroeconomic shock, the ECB will set a target level of capital depletion and require banks to identify the events that could trigger it. Supervisors have separately instructed institutions to intensify monitoring of both direct and indirect cross-border exposures and to build additional provisions if needed. Buch noted that while asset quality remains solid—euro-area banks ended 2024 with a 15.9% common-equity Tier 1 ratio, a 5.9% leverage ratio and a non-performing loan ratio around 2%—higher trade barriers risk eroding creditworthiness and profitability, particularly in pockets such as commercial real estate. Investors are taking the latest guidance in stride. Shares in European banks rose 1.9% on 29 July to their highest level since September 2008, helped by analysis from Alvarez & Marsal suggesting lenders will perform better in the current supervisory examination than they did two years ago. Results of the European Banking Authority’s 2025 EU-wide stress test are scheduled for early August, after which the ECB’s 2026 geopolitical exercise will become the sector’s next major hurdle.