The 2027 Stress Test: Preparing for change

Europe’s financial authorities continue to view stress testing as one of the most important devices in their supervisory toolkit.

Data gathering for 2026’s thematic reverse stress test of geo-political risks is complete, with results expected to be published by the ECB in July or August. This exercise investigates how banks are integrating geo-political risks into their internal credit ratings, IFRS 9 provisioning, and capital planning. Banks will be keen to learn what conclusions the ECB draws from this exercise, and how they will be integrated into future supervisory practice. 

Looking ahead, 2027 will bring the biennial EU-wide stress test. As in prior years, the EBA will test a sample of banks across the EU and Norway, while the ECB extends the test to virtually all banks under its direct supervision. EBA published the draft methodology and templates for the 2027 stress test for consultation on 11 June – earlier than in previous cycles.

The 2027 stress test will build on previous cycles, with two notable innovations:

• Addition of climate-related shocks to the core macroeconomic scenario
• Alteration of templates to align stress tests more closely with COREP/FINREP

These significant, connected changes will pose some challenges for participating banks. To illustrate the planning and preparation required, we now look at each in greater detail. 

One key change from previous stress tests is that in 2027, , climate risk will be integrated into the stress test for the first time. An additional module focusing on the vulnerability of selected portfolios to physical and transitional risks means that the EBA/ECB test will combine:

• An adverse negative macroeconomic scenario in the core stress test
• An additional set of climate-related shocks, such as:
  • Physical risks, in the form of sudden severe river flooding
  • Transition risks, e.g. carbon or energy price volatility

Although the climate risks will not affect core stress test results, the layering of climate-related shocks is likely to require additional effort on data collection and impact estimation versus the 2025 exercise.

The draft methodology and templates reduce the number of required data points by 55% compared with 2025 by drawing more heavily on regular supervisory reporting. EBA presents this as part of its efforts to simplify regulatory compliance for banks.

To reduce duplication between stress tests and regular submissions, the EBA is also currently consulting on changes to the ITS on supervisory reporting. This ‘simplification package’ will alter the data collection requirements of COREP and FINREP, with amended reporting templates expected to go live in September 2027. From 2029 onwards, COREP/FINREP submissions on capital, risk, and financial performance will provide starting point data for the EU-wide stress test.

Once implemented, the simplification package should significantly reduce stress test efforts for banks by cutting data duplication, redundant templates, and the need for historical reporting. In the interim however, the 2027 stress test will feature altered templates that anticipate the incoming simplification package. Completing these is likely to require additional one-off effort and investment from participating banks.

With the format of the next EBA/ECB stress test coming rapidly into focus, banks should use the second half of 2026 to prepare for intense activity in the early months of 2027. Advanced planning and preparation will be key to adapting data models, processes and controls for the new features of 2027. Areas of focus for banks to consider might include:

• Resolving outstanding BCBS 239 issues, ensuring that stress test starting point data meets the same RDARR standards as COREP and FINREP.
• Defining internal roles, responsibilities and resource budgets for the 2027 stress test.
• Bringing relevant functions together to make early decisions about data and reporting architecture.

In parallel, banks will need to continue to integrate climate risk and other ESG factors into their risk modelling and management – the inclusion of climate risk in the 2027 stress test is another sign that EU regulators are not letting up the pressure in this area.

Banks with a strong grasp of the incoming changes will not only reduce the effort required in 2027 and improve their chances of a favourable SREP outcome. They will also be better placed for a future in which stress test data submissions are increasingly integrated into routine supervisory reporting.