Preparing for the ECB’s 2026 Stress Test: Modelling Geopolitical Risk Scenarios

The ECB's 2026 stress test poses unique challenges due to an increasingly complex geopolitical environment. The Scenarios and Modelling team focuses on integrating these geopolitical risks into their stress testing framework.

Key Features of the Stress Test

The scenarios combine traditional economic variables with geopolitical considerations to capture the broader risk landscape.
Modelling efforts emphasize the potential ripple effects that geopolitical tensions can have on financial stability.
The approach reflects the evolving external environment that banks face, aiming to improve resilience assessments.

"Our modelling captures not just economic shocks but also the uncertainties stemming from geopolitical developments," the team notes.

Importance of Geopolitical Risk in Stress Testing

Geopolitical events can cause sudden market disruptions, impacting credit markets, trade, and investor confidence. Incorporating these risks ensures stress tests reflect more realistic and holistic challenges banks might encounter.

Methodological Innovations

Scenario design integrates data on political tensions, sanctions, and supply chain vulnerabilities.
Dynamic modelling techniques simulate how geopolitical shocks propagate through financial and economic systems.
Continuous updates keep the scenarios relevant as global situations evolve.

Stress tests incorporating geopolitical risks lead to more robust financial oversight, helping to safeguard the banking sector against future shocks.

Oxford Economics — 2025-11-24